ATI acquisition is AMD insurance

Stan Beer
Tuesday, 25 July 2006 06:15

Opinion and Analysis

There has been a lot written about the consequences and significance of AMD’s US$5.4 billion acquisition of specialist chip and chipset manufacturer ATI. Speculation that AMD will now be able to challenge Intel, however, is off the mark.

Intel reportedly spends five times as much as AMD each year on plant infrastructure and has four times the market share. Even AMD, which has a clear objective to win 30% market share of the PC processor space, acknowledges that it will not be the number one player anytime soon.

However, despite what analysts may or may not say about the price, the ATI acquisition is an acknowledgement by AMD of one very clear fact. The PC market is slowing. Obviously, there is still China and India, but growth in the PC space is tapering off.

Meanwhile, the consumer electronics and communications areas are exploding with a plethora of new devices that require specialised processors and chipsets, such as mobile phones, digital cameras, games consoles, digital TV set top boxes and so on. This is a clear growth market that any major semiconductor manufacturer would be foolish to ignore.

In fact ATI is AMD’s insurance policy against being subject to the fluctuating fortunes of the PC space.

The acquisition of ATI specifically provides AMD with the capability to address the market outside of the computers space. While ATI is the smaller company, one day it may become the largest part of AMD’s business. If so, then one day in the not too distant future the price AMD paid may seem like a bargain.