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AMD's Troubles and Why Qualcomm Should Buy

By - Source: Tom's Hardware US | B 69 comments

Earlier this week, we were treated to a warmed up rumor that AMD is apparently on the auction block and Dell may be buying the company and dramatically shift its business strategy.

As entertaining as these rumors are and as easy they are to dismiss, there is a serious note to such stories. AMD has attractive assets, while it isn't exactly competitive at this time anymore. A deep-pocketed buyer with a complimentary set of assets could be very interested in AMD.

There is an interesting discussion in Silicon Valley among analysts that suggest that an acquisition of AMD isn't the stretch we believe it to be. Dell buying AMD would be big surprise, especially in the background that the company's core business are PCs and an acquisition of AMD would put Dell in the line of fire of Intel. As dependent as Dell is on Intel, that would be suicide. If there is a PC vendor that could be interested in buying AMD, it would be Apple -- if the company was to build its own CPUs, but that does not seem to make any economic sense for Apple.

The options

Here is another idea: What if there was an ARM vendor that wants to break out of the old? ARM itself is unlikely to leave its successful business model, but actual chip makers could be using AMD to protect themselves from the coming Windows on ARM era. There is a lot of knowledge in AMD and x86 may be an interesting diversification.

A quick look into the balance sheets of ARM licensees reveals that there are just two options and two companies that could afford to buy AMD and sustain a war with Intel. Samsung and Qualcomm. TI or Freescale may be interested as well, but their financial covers are too thin to swallow a company that could cost somewhere in the range of $10 billion. Qualcomm has about $10.5 billion in cash and Samsung has a bit more than $11 billion available in cash.

The chip manufacturing horse race is already led by Samsung and Intel as the two dominant semiconductor companies worldwide. Samsung and Intel are currently considered to be the only manufacturers that can drive chip manufacturing beyond the 20 nm node and they are believed to have enough financial resources to build the $6 billion+ fabs that are required to make such chips economically feasible. However, Qualcomm appears to be an even more interesting buyer.

Qualcomm acquired AMD's mobile graphics business a little over two years ago. The Imageon processor has since then dissolved into Qualcomm's mobile GPU business and the Adreno GPU series. There is already some business synergy.

Within 18 months, Qualcomm as well as other traditional ARM vendors such as TI will get a new opportunity with tremendous competition in the Windows ARM segment especially from Nvidia, which is putting out stakes for the lead in this market. As inexperienced as Nvidia may be in this field, as serious is the threat to ARM vendors: Nvidia will be using its chip building expertise and GPU know-how to become the leading ARM vendor for Windows systems. AMD could deliver invaluable technology for Qualcomm and provide business options to boost its ARM business and explore the x86 market. It would be a substantial risk for Qualcomm, but the company would not burn any bridges with Intel and could supply the funding for a more competitive AMD that would have to get much more nimble, however.

The AMD Perspective

On AMD's side, we know that CEO Dirk Meyer had to go because he did not react quickly enough to cater products to the tablet and smartphone market. While AMD maintains that there will be tablet processors available this year, the company has empty hands in a buzzing market right now -- a market that holds the promises of the biggest opportunities for processor makers in decades. Next to Meyer, COO Bob Rivet was also let go. There may be other reasons, but there is a slight chance that the company is being prepared for a substantial shift in product strategy.

What made me question the firing of Meyer was the fact that there aren't many executives that can successfully lead a company like AMD -- people that can sense trends and motivate employees with the necessary vision, talent and charisma. If you will, the AMD job with all its economic ups and downs and the continuous threat of being extinguished by Intel isn't exactly an any-type-CEO job. Especially in this critical stage for AMD, it may have been more effective if chairman of the board Bruce Claflin would have stepped on Meyer's toes to change the direction of the company. Claflin must already have a candidate in mind -- someone like EMC's Pat Gelsinger, who led the engineering of Intel's 486 and Pentium processor -- or he is simply cleaning out the company so it can be acquired.

Either way, we will see a pretty significant development for AMD soon. If Claflin fired Meyer without backup, the effects for AMD will be equally significant, albeit in a negative way: AMD is currently doing well financially and its CPU lineup looks promising, with the exception of the gap in the mobile range. However, we also know that it is part of AMD's culture to shoot itself in the foot when the company is doing well. Self-inflicted vulnerability has always been a part of AMD's history. Remember how dominant AMD was with Opteron and the Athlon X2 in 2004/2005? Back then, it was pure arrogance that punished AMD and allowed Intel to take back the technology leadership.

The statement that AMD will be acquired is as much speculation as it can be, but Qualcomm seems to be a company that could be very interested in doing just that. Are we seeing the final chapter of AMD as an independent company right now?

Discuss
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  • 6 Hide
    kilo_17 , February 18, 2011 6:37 PM
    This sounds a lot more promising than Dell buying AMD
  • 5 Hide
    yyk71200 , February 18, 2011 6:51 PM
    Bulldozer is about to roll out. If it is good (and it looks good on paper) and if AMD changes strategy + AMD graphics, AMD's near future may be pretty good.
  • 4 Hide
    ares1214 , February 18, 2011 6:53 PM
    I had no idea Qualcomm had so much money. They would be a perfect fit for AMD!!!!
  • 4 Hide
    retirepresident , February 18, 2011 6:54 PM
    I think its just a rumor to at AMD bad humor about intel SB. But if not Samsung has the muscle to push AMD/ATI. Samsung and AMD/ATI = Kicks intel @@s.
  • 3 Hide
    Anonymous , February 18, 2011 6:58 PM
    I love AMD, but they seriously need a kick in the ass to get moving.
  • 4 Hide
    spiketheaardvark , February 18, 2011 7:01 PM
    I've always thought that an IBM and AMD merger made a lot of sense. IBM gets back into personal computing and AMD gets IBMs manufacturing and R & D power.
  • -1 Hide
    liveonc , February 18, 2011 7:02 PM
    IBM???
  • 2 Hide
    jprahman , February 18, 2011 7:05 PM
    I have to agree that an AMD/Samsung combination would be incredibly powerful. As the article mentioned Samsung has a great deal of knowledge in the wafer fabrication area, which is a bit of a weakness of AMD's. Just look at how Intel has pressed it's manufacturing advantage to beat AMD by producing chips one fabrication node farther than AMD, allowing for more features and improved overclocking headroom. Samsung would add a great deal of engineering talent and R&D capital to AMD allowing for AMD to greatly improve their processor and GPU designs. And I don't think Samsung would mind getting a hold of AMDs x86 license.
  • 2 Hide
    jprahman , February 18, 2011 7:08 PM
    That's a good point about IBM. IBM and AMD have done a lot of work together in past, so a buyout would make sense. In fact, IIRC, the design for AMDs first integrated memory controller was from IBM.
  • 2 Hide
    kronos_cornelius , February 18, 2011 7:10 PM
    I have faith AMD will pull through.
  • 1 Hide
    Anonymous , February 18, 2011 7:10 PM
    I think that AMD is prime for being acquired:
    -It's balance sheet is finally out of the red (at least sort of)
    -New products that rock
    -The stock @ anywhere under $12 bucks is undervalued in my opinion.
    -A number of OEM's are switching to AMD products etc...

    Good luck AMD!
  • 2 Hide
    SpadeM , February 18, 2011 7:13 PM
    IBM sounds nice, their RISC architecture is top noch in the powerpc versions or CBE ... but I doubt IBM wants to play around with barby dolls at their level. And between samsung and qualcomm i'd prefer samsung. But then again, if bulldozer is a win the 10bilion price tag will go up.
  • 0 Hide
    MxM , February 18, 2011 7:17 PM
    At least for me the article does not make sense. Somehow ARM makers should be afraid windows on ARM, because NVIDIA has IP in graphic cards. Go figure.
  • -1 Hide
    ananke , February 18, 2011 7:19 PM
    IBM is a service company. They have no manufacturing, neither AMD has. The Global Foundries are the manufacturer, but they are indipendent entity. I see no reason for anybody to spend so much as to acquire AMD right now, just to obtain some patents. The x86 lisence is revocable if AMD is sold, hence the possible acquirer will not even get x86 lisence...
  • 0 Hide
    rhino13 , February 18, 2011 7:29 PM
    Wow, Wolfgang that's two well researched poorly writen articles in a row.

    Quote:
    AMD has attractive assets, while it isn't exactly competitive at this time anymore.

    Quote:
    AMD is currently doing well financially and its CPU lineup looks promising


    Contradict much? Maybe you should do the research and let your kid daughter write just the facts, not your oppinions.
  • -3 Hide
    Anonymous , February 18, 2011 7:34 PM
    The chinese should buy it. Not only would it help advance their IP, it'll give them a major presence in the IC industry. Although they currently are developing their own processor right now, it is still a few years behind US base company. Acquiring AMD would do wonders for them. With their $ and exposure, AMD would be bigger than intel in no time.
  • 0 Hide
    _Pez_ , February 18, 2011 7:36 PM
    it is just a rumor. that is it. A stinky dirty little biatch strategy. LOL
  • 0 Hide
    jprahman , February 18, 2011 7:45 PM
    Why would the Chinese buy one of our companies in order to acquire IP when they could just steal it like they have been doing for years. You wouldn't believe the type of data that the Chinese have stolen. Back in 2000 Chinese hackers broke into Los Alamos National Laboratory's computer system and stole a 3ft tall stack of highly classified nuclear weapons documents. So they clearly have no trepidation stealing what they can't invent.
  • 1 Hide
    liveonc , February 18, 2011 7:47 PM
    SpadeMI... but I doubt IBM wants to play around with barby dolls at their level.

    They played with Sony... ;-)
  • 3 Hide
    f4phantom2500 , February 18, 2011 7:54 PM
    does anyone else think it'd be hilarious if bill gates bought amd just because he could?
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