The latest chatter surrounding AMD is talk of a possible acquisition by IBM. That thread began making its way around on Wednesday, via a Reuters story quoting a Wall Street Analyst. AMD, for its part, told me it won't comment. My take is that acquisition isn't in the cards right now, but it's highly likely that AMD and IBM will expand their already existing partnership, which began in 2003 when the two joined forces on the development of 65-nm chip-fabrication technology.Mostly, all this takeover talk is a reflection of the investor anxiety that's been swirling around AMD for some time now. Concerns spiked following AMD's $5.4 billion acquisition of graphics chip maker ATI, a deal finalized in Oct. 2006. Subsequent anemic financial performance and a bug in AMD's new quad-core processors haven't helped matters.
Lately, though, things have been looking up. AMD's recent earnings report was the best in a long time. Losses were way down, and shipments were up. As Chief Financial Officer Robert Rivet put it in the press release: "We were close to break-even operationally for the [2007 fourth fiscal] quarter ... We shipped a record number of microprocessor units in the quarter, including nearly 400,000 quad-core processors."
Still, AMD continues to take a beating in the media. Such negative press only fuel speculation like the IBM rumor. Let's face it, though, that particular report is not solidly sourced. It comes out of an analyst quote, in the Reuters story: "The takeover of AMD by IBM has been mentioned before and with AMD shares being so low, it might be a good time for IBM to acquire them," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York.
I know, you're thinking, where there's smoke, there's fire. Well, the thing about AMD is that it's always going to be at a disadvantage vis a vis its far larger cousin. If Intel is a supertanker, able to ride out each bump in the marketplace and rebound from costly missteps, AMD is a PT boat. (You get the analogy, right?)
So what AMD really needs is a partner who can provide it with the specific resources it sorely lacks. In AMD's case, this means increased fab (semiconductor manufacturing) capacity, which it needs if it's to up its market share by making and selling more dual- and quad-core processors.
Not surprisingly, no one outside of Taiwan has more fab capacity than IBM (Intel aside, of course). Moreover, IBM's capacity is at the bleeding edge. It's not like IBM has to scrape to get a fab going which is capable of doing the latest process (be it 45-nm today and 32-nm very soon). Nope, IBM has resources to spare. What it maybe doesn't have is enough high-volume chips to actually manufacture. This is where AMD comes in. They've got processors -- like the Operton server chip -- that the marketplace really, really wants.
So an expanded AMD-IBM partnership would be a win-win. AMD would get resources it really needs and IBM would get to keep its fabs filled. All in all, a bit of speculation which makes sense to me.
A die shot of AMD's quad-core Opteron, aka Barcelona. (Click picture to enlarge.)
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