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.

ATI CHOSEN TO MAKE XBOX 360 HD DVD DECODER

Not much of a surprise here as they also make the Xbox 360 graphic chip, but ATI has announced that Microsoft has chosen them to make the decoder for the upcoming HD-DVD add on drive for the Xbox 360.

“ATI Technologies (TSX:ATY)(NASDAQ:ATYT) today announced that Microsoft Corp. has chosen ATI’s H.264 decoder for the Xbox 360™ HD DVD player, bringing users sharper, more true-to-life visuals and smoother playback of high-definition content. HD DVDs encoded using one of three approved codecs deliver up to six times the resolution of traditional DVDs all on a single disc. Built on ATI’s Avivo™ technology, the decoder used for the Xbox 360 HD DVD player brings to bear ATI’s considerable multimedia know-how to ensure gamers, home theatre buffs, and casual viewers alike get a more perfect picture from the H.264 format” -ATI press release

As expected, the Xbox 360 GPU will handle much of the workload in rendering the video, thus eliminating many of the components used in a stand-alone HD-DVD player, which should help to keep the costs of the 360 HD-DVD add on reasonable.

“To enable the smoothest H.264 video playback possible, the ATI decoder technology makes use of the Xbox 360’s graphics processing unit (GPU) to accelerate video processing. The unified shader design of the GPU enables high-end processing techniques such as comb filtering and automatic gain control to ensure that video artifacts such as blockiness or color bands don’t disrupt playback.” -ATI press release

The Xbox 360 HD-DVD external drive is expected to hit shelves later this fall at an as of yet undetermined price. Check out the full ATI press release here and then remember that while HD-DVD may be nice to look at, until the HD format wars are decided, it’s a bit too soon to start replacing your entire DVD collection.