AMD to Purchase Xilinx for $35 Billion in Stock Deal

This morning, Advanced Micro Devices (AMD) announced that it has agreed to buy rival chipmaker Xilinx in a $35 billion all-stock deal—its largest acquisition to date. 

The deal could be transformative for AMD, providing a huge boost for its ambitions to become a major player in the data center industry and bumping the company's expertise with over 13,000 engineers and more than $2.7 billion in annual research and development spending. 

It will also provide AMD with more resources and new business lines to compete with Intel—AMD’s biggest rival—which produces its own chips for data centers and cloud computing applications.

 

Bolstering AMD’s Chip Portfolio

Acquiring Xilinx will add several new chips to AMD’s portfolio. These include field-programmable gate arrays (Spartan, Zynq, Artix, and others), which have several useful applications in commercial, embedded, and enterprise markets, and in emerging technologies such as 5G infrastructure.

 

Some of Xilinx's offerings of FPGAs and 3D ICs across multiple nodes. Image used courtesy of Xilinx

 

Indeed, it is big chipmakers’ desires to scale their businesses to dominate 5G and the IoT that have brought about the current bout of M&A fever in the semi market. Xilinx also makes chips for aerospace, automotive, and other critical industries.

“Our acquisition of Xilinx marks the next leg in our journey to establish AMD as the industry’s high-performance computing leader and partner of choice for the largest and most important technology companies in the world,” said AMD’s CEO Lisa Su. “We have both chosen [the] data center as our strategic focus. Our approach to technology development is actually very similar [to Xilinx],” she added. 

AMD’s desire to go after the data center market is expected to intensify the company’s competition with Intel for a larger slice of the valuable market for making data center chips, whether they’re operated by individual companies for their own use or the cloud computing infrastructures operated by companies like Amazon Web Services, Microsoft, and Oracle.

 

$143 Per Share Value

Xilinx shareholders will receive roughly 1.72 shares of AMD common stock per Xilinx share. This places a rough value of $143 per share on Xilinx stock, representing a 25 percent premium in contrast to its closing price on Monday, September 26. Current AMD shareholders will own 74 percent of the combined company while Xilinx shareholders will own the remaining 26 percent. 

 

AMD's HQ location in Santa Clara, California. Image used courtesy of Hexus

 

AMD says that the deal will benefit the company’s margins, per-share earnings, and free cash flow generation with operational efficiencies estimated to reach $300 million within 18 months of the deal closing. 

Xilinx CEO Victor Peng will be joining AMD in a presidential capacity responsible for the Xilinx business and two Xilinx directors are said to be joining the AMD Board of Directors. 

 

A Blockbuster Year

The AMD-Xilinx deal is the latest in a series of big-ticket, high-profile deals announced in recent months, which include NVIDIA’s acquisition of Arm for $40 billion, Analog Devices’ purchase of Maxim Integrated for roughly $21 billion, and SK Hynix’s takeover of Intel’s NAND memory business for $9 billion. 

Earlier this month, we reported how 2020 was set to be the second-highest year on record for semi industry M&As. In just a few short weeks, the $9 billion Intel-NAND deal and this $40 billion AMD-Xilinx deal will add $49 billion to the previous worldwide total value of semiconductor M&A agreements of $63.1 billion, increasing it to roughly $112.1 billion.

 

NVIDIA’s $40 billion purchase of Arm and Analog Devices’ circa $21 billion purchase of Maxim Integrated previously accounted for roughly 97 percent of the $63.1bn value of 2020 semiconductor M&A agreements up to the end of Q3. Image used courtesy of IC Insights

 

It therefore now seems inevitable that 2020 will indeed be the largest year on record for semiconductor M&As, surpassing 2015—the current record holder—by a few billion. This is of course subject to regulatory approval of the NVIDIA-Arm, SK Hynix-Intel, and AMD-Xilinx deals, which are yet to close officially. 

The AMD-Xilinx deal is expected to close by the end of 2021.