Blockbuster: AMD Buys ATI - 25 Jul 2006

Microprocessor maker AMD announced that it's purchasing graphics chip maker ATI Technologies in a blockbuster deal for $5.4 billion in cash and stock. Although many question the extravagant sum AMD is paying for the company, AMD's intentions are clear: By bringing an established graphics chip player in house, AMD can offer more direct competition to market leader Intel and potentially open more doors at AMD holdouts such as Dell.

"ATI shares our passion and complements our strengths: Technology leadership and customer-centric innovation," says AMD's Chairman and CEO Hector Ruiz. "Bringing these two great companies together will allow us to transcend what we have accomplished as individual businesses and reinvent our industry as the technology leader and partner of choice. We believe AMD and ATI will drive growth and innovation for the entire industry, enabling our partners to create differentiated solutions and empowering our customers to choose what is best for them."

AMD is positioning the purchase almost as a merger, noting that the two companies will "join forces" to create "a new and more formidable company." According to AMD, the companies will integrate their products, providing PC makers and consumers with chipsets that combine AMD's microprocessors with ATI's graphics chipsets.

Intel has been integrating graphics chipsets with its microprocessors for years, and the company's products have recently grown more powerful. The latest version of Intel's integrated graphics chipset is capable of handling the Windows Vista's Aero UI, for example, and is the only integrated graphics chipset that can do so.

Currently, AMD partners with ATI's major competitor NVIDIA for graphics chipsets, so it will be interesting to see how this purchase affects NVIDIA. ATI also partners with Intel. AMD says its partnership with NVIDIA will continue, although it's pretty obvious that all these partnerships will likely dissolve over time. For its part, NVIDIA claims the ATI purchase is the best thing to happen to it. An NVIDIA spokesman said the company is now the only major independent provider of graphics processors and is more valuable to its partners and customers as a result. Not coincidentally, NVIDIA stock shot up more than 10 percent in the wake of the ATI deal.