Technology

An AMD-Xilinx deal would be fraught with more risk than the Nvidia-Arm tie-up

Nvidia’s opportunity with Arm Holdings is clear. At AMD, there are more open questions if it buys Xilinx

Updated 15th October 2020 | 09:55 IST

Nvidia’s announcement a month ago of an idea to accumulate Arm Holdings for $40 billion was followed last week by reports of another towering deal in semiconductors: Advanced Micro Device’s prospective purchase of Xilinx for about $30 billion.

The move by AMD, unconfirmed by the corporate, would come at a stimulating moment. AMD AMD, -1.25% has seen strong momentum in its PC business over the past two years, making material gains on its largest competitor, Intel INTC, -0.52%. At an equivalent time, AMD has slowly but surely made progress within the datacenter with smaller, albeit consequential, gains in market share.

The semiconductor industry is additionally at an inflection point.

While I think Intel’s demise is wildly overstated, the corporate has suffered a series of execution problems that have opened the door for competitors including AMD, Nvidia NVDA, -1.07%, and Qualcomm QCOM, +1.89% to form gains in Intel’s sandbox.

Xilinx is undoubtedly Intel’s biggest competitor therein space. Without a litany of technical jargon, these programmable chips are critical surely applications like automotive and data-center chips. This capability also makes AMD more ready to develop and modify next-generation chips on the fly to create general-purpose CPUs and GPUs also as application specific integrated circuits (ASIC

s), which have quickly become a crucial growth area for a mess of workloads with a specific focus, like recommendation engines for e-commerce or conversational AI (AI) for chatbots.

I also believe AMD sees this as an opportune time to require market share from Intel. With its stock price growth — almost a tripling in one year — it might be a beneficial time to use its market cap to accumulate new revenue and capabilities.

The questions somewhat offset this partnership’s potential and revenue that this deal raises.

First, the FPGA has a crucial role within the data center, and Xilinx is one of the most important players during this space. However, as I discussed, there’s tremendous momentum in demand for ASICs.

Meanwhile, Xilinx’s revenue fell 14% in its fiscal half-moon. Xilinx and AMD wouldn’t have an in-house vehicle to require FPGA cores at scale and deliver ASICs the way Intel can. Through its acquisition of Altera and eASIC, Intel can deliver the complete lifecycle of FPGA to ASICs.

With Xilinx missing this capability, AMD would likely finish up seeing the business shift to Marvell MRVL, -1.00% to satisfy market demand.

Acquisition risk
It is also important to notice that AMD’s impressive growth hasn’t been through acquisitions within the past few years. In fact, the corporate hasn’t made a purchase of note since Lisa Su became CEO in 2014. The last big acquisition the corporate made quite a decade ago was ATI, and therefore the consensus was the corporate greatly overpaid for ATI and the integration was fraught with issues costing its GPU leadership within the process.

I believe Su may be a wildcard here, as she’s changed the face of the corporate and therefore the execution, but there’s a little diary of successful acquisitions by AMD in recent memory. With all of this in mind, at $30 billion, it becomes a must-ask question if that tag is just too high, especially compared with the vast growth opportunities that Nvidia will realize in its $40 billion acquisition of Arm.

An acquisition of Xilinx by AMD would be another indicator of the hot semiconductor industry. The race is tightening, and as AMD, Intel, Qualcomm, Nvidia, Marvell, et al. push for growth, the market benefits from the innovation that’s created. However, I don’t believe any deal would offer as significant an impression on the longer term of AMD because the Arm acquisition will wear Nvidia.

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