AMD TO BUY ATI FOR 5.4 BILLION DOLLARS

Advanced Micro Devices (AMD) today confirmed what has been floating around the ‘net as a rumor these past few weeks – namely that they are purchasing graphics chipmaker ATI Technologies.

“NEW YORK — July 24, 2006 —AMD (NYSE: AMD) and ATI (TSX: ATY, NASDAQ: ATYT) today announced plans to join forces in a transaction valued at approximately $5.4 billion. The combination will create a processing powerhouse by bringing AMD’s technology leadership in microprocessors together with ATI’s strengths in graphics, chipsets and consumer electronics. The result: A new and more formidable company, determined to drive growth, innovation and choice for its customers, particularly in the commercial and mobile computing segments and in the rapidly-growing consumer electronics market. Combining technologies, people, and complementary strengths, AMD plans to deliver in 2007 customer-centric platforms for the benefit of customers who want to collaborate in the development of differentiated solutions..” -AMD Press release

The move, while certainly noteworthy, doesn’t really make all that much sense if you ask me. AMD is closely tied to Nvidia as far as chipsets go, and it seems adding Nvidia’s main competitor (and thus closing off that avenue of profit) along with picking up a large chunk of debt from ATI just spells trouble in the long-run. It’s almost as if sides are now being drawn… AMD/ATI on one side, Intel and Nvidia on the other.

Investors seem to be choosing sides already with AMD stock falling in trading today while Nvidia stocks saw over a 10 percent increase. The moves indicate just how risky a proposition this is for AMD and, needless to say, it could have dramatic short and long-term effects on the industry. Where it’s all going to wind up is anyone’s guess, but we’ll be following this story over the next few months (and longer) as things become more clear-cut.

Click here for the AMD press release, here for a Yahoo/Reuters report on the merger and here for a CNN Money article showing that investors are already preparing for closer partnership between Nvidia and Intel.