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AMD Rakes In Chipset Maker ATI

8/07/2006 02:00:00 AM Eastern

AMD's move to snap up graphics card maker ATI Technology was met with some curiosity by industry analysts, but generally the deal was considered a sensible move for the processor maker.

The deal was described as one with a far reaching impact on AMD with little upfront benefit.

The transaction, which still requires the approval of each company's board, was announced on July 24 and has AMD paying $4.2 billion in cash and 57 million shares of AMD common stock for the Ontario, Canada-based ATI. Company executives said once completed the acquisition will create an entirely new AMD, one capable of creating integrated solutions in the same fashion as Intel.

Historically AMD only supplied processors to vendors. While this gave manufacturers the flexibility to configure their systems more precisely, non-integrated graphics solutions put a greater strain on a PC's resources, said Jim McGregor, a principal analyst with InStat.

This situation is something AMD's customers had been requesting and should boost the company's ability to compete with Intel in the corporate computing market, said Steve Baker, The NPD Group's industry analysis VP.

Another result should be better AMD mobile processors, McGregor said, an area where AMD has lagged behind Intel. AMD is not likely to enjoy an immediate return on its investment as it will take time for AMD to learn how to integrate ATI's graphics technology with the processors, he said.

Baker was unsure why ATI entered the deal.

“I'm not sure what ATI's benefit is, it will lose a ton of business to Intel and its notebook business, too,” he said.

McGregor believes ATI would have eventually experienced a fall off in sales to Intel anyway due to that firm's ability to create its own graphics chipsets.

He sees the real loser being NVIDIA, which had partnered with AMD and Intel and now neither company needs its products. ATI still plans to work with NVIDIA.

Both analysts expect AMD to take a hands-off approach to ATI's aftermarket graphics card business because it is the area where ATI uses the aftermarket to push its technological boundaries in order to attract the PC enthusiasts who require the best graphics cards available. This technology is then shifted over to its chipset business.

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