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AMD still needs to face three big mountains to buy Xilinx for $30 billion

Recently, another acquisition news in the semiconductor industry has caused a lot of splashes.

On October 9, according to the Wall Street Journal, AMD intends to acquire Xilinx, the leading manufacturer of FPGAs, at a price of more than $30 billion, and the negotiations have entered the final stage. A person familiar with the matter said that the earliest results will come out this week. In this regard, AMD did not respond, while Xilinx said: “It does not comment on any market rumors.”

Affected by this news, Xilinx’s share price rose more than 17% before the market last Friday, and AMD’s share price fell nearly 3%. From the perspective of capital market sentiment, this also reflects to a certain extent that some investors are not optimistic about the acquisition.

As one of the representatives of the semiconductor industry giants, why did AMD acquire Xilinx? What are the variables behind this acquisition?

Behind the sky-high acquisition, AMD and Xilinx have their own considerations

Judging from the current information, although neither AMD nor Xilinx has given a specific response, in the eyes of many people in the industry, both parties are interested.

Why is Xilinx willing to approach AMD and intend to sell it to the other party? In the view of the US Stock Research Institute, this is still related to the recent development of Xilinx.

Xilinx is the leading manufacturer of FPGA. What is FPGA? FPGA is Field Programmable Logic Gate Array. Products can be optimally designed with specific chip models.

As a leader in the industry, Xilinx’s strength is unquestionable. Due to the influence of objective factors, it cannot escape the dilemma of losing customers in the face of business decline. At the same time, according to the performance disclosed by Xilinx this year, both revenue and net profit have declined.

Xilinx’s fiscal 2020 full-year Q4 financial report pointed out that revenue was $756 million, a year-on-year decrease of 8.7%; while Q2 fiscal year 2021 revenue was only $727 million, a year-on-year decrease of 14.47% %. Revenue continued to decline for two consecutive quarters, and even the news of layoffs of 7% at the beginning of this year may be an important reason for Xilinx to consider acquisitions.

After Xilinx intends to accept the acquisition, why did AMD choose it? What will the acquisition of Xilinx bring to AMD? Let’s take a look at AMD’s stock price and performance this year.

As of the close on October 9, 2020, AMD’s share price has risen to $83.1 per share, with a total market value of about $97.564 billion. This year, the company’s share price has soared by 90%.

According to AMD’s Q2 financial report for fiscal year 2020, revenue was $1.932 billion, an increase of 26% from $1.531 billion in the same period last year and an increase of 8% from $1.786 billion in the previous quarter; net profit It was US$157 million, an increase of 349% from US$35 million in the same period last year.

In terms of business revenue, in the Q2 quarter, although AMD did not announce specific data center revenue data, in the earnings conference call, its executives said: In the cooperation between Zen 2 and Rome processors, due to some key customers The emergence of our data center business has had a very good acceleration.

According to a previous report from Lei It is speculated that in 2019, AMD’s Radeon Instinct GPU sales in data centers will be $293 million, and Epyc CPU sales will be $694 million, totaling $986 million, accounting for $6.73 billion of its sales. 14.7% of dollar sales.

From this perspective, the data center business has become one of the driving forces for AMD’s performance growth. Therefore, Xilinx is the pioneer and leader of the FPGA chip market, and is the key to AMD’s access to 5G communications, data centers, unmanned driving, defense and other hundreds of billions of dollars in markets.

It can be said that for Xilinx, in order to deal with the crisis, it is a good way to be acquired by AMD to achieve a strong alliance. As far as AMD is concerned, the acquisition of Xilinx to make up for its strategic needs in the data center field is the most powerful blow against the old-fashioned power Intel and the fierce back wave NVIDIA.

Monopoly review, fierce competition, neutrality, the three mountains that weigh on acquisitions

Although based on the information currently known, it can be known that the AMD-Xilinx acquisition is largely likely to be successful. But after the news was released, Xilinx rose sharply and AMD’s stock price fell slightly, we can see that the market may not be so optimistic. After all, there are some unknown variables behind the transaction.

1. Unable to escape monopoly review

AMD is the world’s leading microprocessor manufacturer other than Intel, and Xilinx is the world’s most powerful FPGA chip manufacturer. Both companies can be said to be leaders in the semiconductor industry. In addition, the amount of this transaction is huge. Or more than 30 billion US dollars, which also makes this acquisition variable.

Similar to the acquisition of semiconductor giants, it is inevitable that they will be subject to stricter regulatory scrutiny, and the regulatory authorities of various countries have different strategic considerations for the review. The previous action of Nvidia’s acquisition of ARM is also affected by this factor. It is still a big risk for AMD to successfully pass the review of several countries.

2. AMD’s competition with Intel and Nvidia does not prevail

As the big brother in the semiconductor industry, Intel’s strength should not be underestimated. As early as five years ago, AMD fell into a trough, and its stock price once fell below $2 per share. When the market value fell to only $1.9 billion, Intel paid $16.7 billion. Altera, the second-ranked company in FPGA, has already laid out in the FPGA market and occupied nearly one-third of the market share.

In addition, Intel’s construction in the field of server processor ecology has always been more superior and comprehensive, and it also has a strong global partner system as support in the field of data centers. It can be said that it is not easy to overthrow the industry of Intel.

Not to mention that Nvidia, a new chip powerhouse that has also developed rapidly and its stock price has surged by 1900% in the past five years, in order to continuously enhance its own competitiveness and continue to exert its domineering spirit, it first acquired high-performance network technology for 7 billion US dollars. The company, Mellanox, later bought ARM, which occupies an indispensable position and influence in the smartphone field, for $40 billion.

According to multiple third-party research reports, NVIDIA occupies an absolute dominant position in the cloud AI chip market, especially in cloud training. In the face of such strong two opponents, although AMD also has its own advantages, it is not surprising that the market is worried about this acquisition.

3. Downstream companies are concerned about whether Xilinx can remain neutral

In the semiconductor industry, AMD and Xisling are also upstream companies. The acquisition may be a powerful alliance for the two companies, but it is tantamount to a disaster for downstream companies. After all, the upstream industry in the industry There are just a few companies. For any acquired company, it is difficult to maintain neutrality after acquisition. For the semiconductor industry, giants have a lot of right to speak. Once AMD successfully acquires Xilinx, it is likely to consider its development.

For downstream manufacturers, if they want to purchase FGPA chips and related solutions, due to neutrality reasons, downstream customers can avoid Altera, which was acquired by Intel, but once AMD successfully acquires Xilinx, only Intel and AMD will be the two a choice. Prior to Nvidia’s acquisition of ARM, many downstream manufacturers were also concerned about whether ARM could continue to remain neutral in the future.