AMD: To Merge Or Not To Merge?

AMD-Nvidia Merger, Take Two

Fast forward to November of 2007. AMD is in trouble and the natural call for Jen-Hsun Huang surfaced again. Approaching Ruiz and the gang with the attitude "what goes around, comes around" and "I want to buy you now" did not go well, we hear. But business is business and is never personal. There was no reason why the deal would not have gone through. All Nvidia needed was enough money to take the company AND the debt. A repeat of the 3dfx charade is not an option here.

However, in order for that to happen, the only way to go was to get support from partners from AMD's eco-system and this is where the trouble apparently started. While Nvidia is achieving record success with sales, it has done so by weakening its partners. From a company that started selling GPUs with memory back in GeForce3 days (and threw Guillemot/Hercules out of the race), Nvidia turned into a company that now sells a complete card, and partners are nothing else but "sticker stampers". This crashed the profits of all the companies involved, and many disappeared. With Nvidia controlling the AIB market for both ATI and Nvidia products, Taiwan would rush into Intel's arms. Memories of what happened with 3dfx when an ex-Siemens CEO took over the company are still livid in the world of graphics card manufacturers.

The second unfavorable factor is the debt-to-equity ratio. Nvidia has a lot of money in the bank, currently about $2.4 billion, but to eat up a company like AMD, it would have to cough up somewhere in tune of $10 billion, since AMD is $5.4 billion in debt.

But with AMD on-board, any rumors that Nvidia is toast would be eliminated forever. Also, Intel would have to face Nvidia on almost every front of its businesses. Nvidia can easily diversify into a networking company (it bought a 3Com team ages ago, which is the reason for the brilliant "plug'n'play" connectivity in nForce chipsets), into a handheld company (APX 2500 is much more important than you might think at first), desktop platforms (Phenom+nForce+GeForce), mobile platforms (Turion+nForce+GeForce), workstation platforms (Opteron+nForce Pro+Quadro), server platforms (Opteron+nForce Pro+Tesla), HPC platforms (Opteron+nForce Pro+Tesla), etc. And, of course, with the recent purchase of Ageia, nothing would stop the company from implementing PhysX in every pore of its DNA.

Sadly, Huang's fault is the fact that he believes in the value of a single company. Just like the company destroyed the 3dfx line-up and did not use the world's second IT brand (Voodoo, just after Pentium) to its full potential, we have no doubt that Nvidia would cannibalize ATI and basically screw up its chipset development, as well as the development of future Radeons. Instead of creating synergy, the company would probably lose valuable time in preparations for the arrival of Nehalem and Sandy Bridge from the CPU side, and Larrabee from the cGPU side.

  • teleclarke
    Here's a curveball. Why doesn't Comcast move into the chip world? Comcast just threw a bunch of money at Clearwire for WiMax deployment, which is to provide one more avenue of pushing content. What if they controlled content, distribution and the end user's equipment via low-cost HTPCs, much like they control the cable box (for the most part, considering the failures of CableCard). This would be a scary situation for MS, Sony and particularly Nintendo (and likely the consumer :p). Bundle Gaming (via HTPC), VoIP over WiMax and cable/fiber, DTV and HS Internet. Vertical integration is the name of the game, not horizontal aquisition, i.e. IBM.
  • Interesting article. One thing you didn't mention about an acquisition by NVidia are the significant regulatory hurdles to overcome, i.e., antitrust. Such a merger would create a pretty big monopoly in the add-in graphics market.