For AMD to acquire a company as large as Xilinx comes as a shock to many. Reportedly, the deal would cost AMD $30 billion, which is almost a third of its market capitalization...
Once again, the chip company acquisition rumors are back! In this acquisition rumor AMD is in negotiations to buy Xilinx. And, again, this story comes from the Wall Street Journal, just as the rumor of NVIDIA buying Arm was, the veracity of which was later substantiated. The reason why these speculative reports come from the Wall Street Journal is that it is well connected with the investment banking community, which gets involved in these types of large acquisition deals. That said, AMD acquiring Xilinx is something that really seems to have come out of left field to us.
First, it was not known AMD was in acquisition mode and certainly not for a company as large as Xilinx and not for so much money. The deal to buy Xilinx is rumored to cost AMD $30 billion, which is almost a third of its market capitalization.
On top of that, Xilinx was not known to be ready to be acquired, as their new CEO was in the midst of transforming the business with the Versal products and extending their drive into the data center, AI, and telecom markets.
The other unusual part of this deal is that AMD’s CEO Lisa Su is known to be rather conservative in business deals and the company just got out from some crushing debt. If this rumor is true, then AMD is attempting to build a much larger company to help it compete with Intel and NVIDIA. But the deal still has many challenges ahead of it.
First and foremost, AMD will have to fund the deal with significant amount of money and either issue additional stock or take on a significant debt. The last time AMD took on a lot of debt was when it bought ATI in 2006 and that burden almost destroyed the company.
As I’m writing this we still do not know if the deal will come to fruition, but we should at least explore what the upsides and downsides might be to such a thought-provoking combination.
It should be noted that the two companies do not have much in the way of overlapping product lines so there is not a significant chance that it would trigger any anti-competitive investigations. And for those who are interested in a little history, it is interesting to note that back in 1988 AMD became a second source for Xilinx FPGAs after it bought MMI (Monolithic Memories, Inc.). Later AMD discontinued the FPGA product line after coming to an agreement with Xilinx which gave AMD stock in Xilinx, that it later sold. There is another noteworthy connection between the two companies – Xilinx CEO Victor Peng Is a former AMD executive.
Victor Peng has been CEO of Xilinx since 2018. Before joining Xilinx, Peng was corporate vice president of the graphics products group (GPG) silicon engineering with AMD and was a leader for AMD’s central silicon engineering team supporting graphics, console game products, CPU chipset and consumer business units. As such Peng is familiar with AMD and their culture.
What does Xilinx bring to AMD?
While Xilinx is making steady progress in the data center market, it still represents only 12% of the company’s revenue, as seen in its latest financial report (below). The company’s Aerospace & Defense, Industrial and Test & Measurement (AIT) division represents 45% of revenue, which includes aerospace, defense, industrial, scientific, medical, test, measurement, and emulation. AMD has a weak or non-existent market presence in these markets and would be complementary if the companies were to merge. The wired and wireless group (WWG) represents 32% of Xilinx revenue and could also be a great opportunity for AMD to move its CPUs into this market to compete with Intel, Qualcomm and Nvidia.
The Automotive, Broadcast, and Consumer (ABC) has recently dropped to 12% of revenue, but has potential as Xilinx continues to make progress in automotive, such as the recent design wins at Continental and Subaru.
The combination of AMD and Xilinx would create a more diversified company, with complementary strengths in different market segments. AMD could accelerate Xilinx move into data center and Xilinx would diversify the portfolio. Xilinx has a strong presence in the distribution channel, where AMD could sell more CPUs and GPUs for embedded designs.
The obvious comparison is when Intel bought Xilinx competitor Altera back in 2015 for 17 billion dollars. For Intel this was an opportunity to acquire an alternative data center AI chip that was being used by Microsoft. Altera was also an Intel foundry customer. And since the acquisition Intel has been working to unify its AI and accelerator software stack under the oneAPI program that include FPGAs. Overall, though, it does not appear that Altera has made significant gains in its competitive positioning against Xilinx. The AMD-Xilinx deal should not be considered a knee jerk reaction to the Intel-Altera deal. For Intel the acquisition of Altera was just part of a shotgun strategy of acquiring many different technologies to create a one-stop shop for AI accelerators. AMD needs a stronger case to make the Xilinx deal work.
One analogy to this potential deal was when Qualcomm attempted to acquire NXP for $44 billion dollars. In that deal, Qualcomm was attempting to diversify its business and drive market share in automotive and embedded systems. That deal did not come to fruition and there would also be similar uncertainty about any large tech deal with today’s global political climate.
The concern is that AMD had expressed limited interest in moving into segments such as automotive, industrial, test and measurement, aerospace, and defense, where Xilinx has its strengths. This would take a significant shift in AMD strategy to embrace those segments.
One other item that Xilinx brings to AMD is a strong history in 2.5D packaging. The company is one of the pioneers of building products using 2.5 D packages. That packaging technology experience will be especially useful for AMD for building larger and more complex SoC’s.
Probably the strongest case that can be made for the AMD- Xilinx combination is that Lisa Su is known to be a conservative and smart executive, and if this deal makes sense to her, many in the industry would give her the benefit of the doubt. The two companies are also major customers of Taiwan Semiconductor Manufacturing Company (TSMC) and this might give the combination a stronger negotiating position with the foundry.
We seem to be entering an era where chip companies are bulking up and we may see more unusual combinations as the industry consolidation continues. For example, back in July ADI and Maxim Semi decided to merge and Tirias Research is expecting more to come. With readily available funding and a strong stock price, AMD may be able to complete this deal. Offhand, we do not see any regulatory opposition because of the non-overlapping business and Intel’s successful acquisition of Altera, but that is still is no guarantee it will sail through smoothly.
For now, we must wait to see if the deal does become public and what the respective CEOs have to say about the two companies combining.