Why Doesn’t Intel Just Buy AMD?

In a world where ARM (NASDAQ: ARMH  ) is now a viable alternative instruction set architecture in the broad computing market (tablet, notebook, desktop) and, indeed, some could say the dominant architecture, why doesn't Intel (NASDAQ: INTC  )  put an end to AMD by simply buying it?

The pros
What would Intel get out of such a deal? Right off the bat, a number of things come to mind:

  • Hundreds to thousands of graphics patents that could potentially be enough to keep Intel from needing to license NVIDIA's (NASDAQ: NVDA  ) patent portfolio
  • Solid graphics IP that could become even more potent if given Intel's R&D and manufacturing leadership
  • 100% market share in the x86 PC market, and the last dregs of the x86 server market
  • A discrete GPU business that could, once ported to Intel's factories, drive some decent revenue growth
  • Intel would immediately inherit all of the semi-custom designs that AMD has in the pipeline

The cons
How about some of the cons? 

  • Intel is likely on the verge of internally developing GPU IP that is more competitive with AMD's, although it's not yet clear how the next-generation Broadwell and Cherry Trail parts from Intel performs in graphics
  • Intel would inherit a modest net debt load, as well as a bunch of PC/server CPU inventory that it would need to continue selling 
  • There still may be antitrust issues, despite the growing prevalence of ARM-based products in the compute continuum
  • AMD is not a meaningful competitor in HPC, and buying AMD's FirePro lineup would still not position it very well against NVIDIA's Tesla
  • AMD would not likely be accretive to free cash flow and, since there is so much overlap, the company would be hit with restructuring charges as it lays off employees
Buying NVIDIA Would Probably Make More Sense
While also unlikely, it really does seem that, other than the shut-AMD-down-in-PCs angle, Intel could get everything that it needs vis-à-vis graphics from NVIDIA, and would even be able to completely dominate HPC with NVIDIA hardware/software. If NVIDIA, under Intel's wing, were to build its GPUs on Intel's in-house process, then Intel/NVIDIA could potentially increase its GPU market share to such a degree that it could potentially put an end to AMD/ATI, as AMD would not be able to compete on performance or power consumption.

It also helps that NVIDIA's balance sheet is clean as a whistle, with billions in net-cash. Further, ex-Tegra (which is losing money), NVIDIA's cash flow (which is already robust) would look even better under Intel's wing. The main thing blocking such a deal, in this Fool's view, is that NVIDIA CEO Jen-Hsun Huang seems dead set to leading NVIDIA to glory on its own (which, if successful, could generate more value for shareholders than an Intel buyout would).

Foolish bottom line
The real reason that Intel is unlikely to buy AMD is simple -- there are better buys out there, including Intel/AMD competitor NVIDIA. Further, with Intel continuing to push AMD out of the x86 business with its own products, it seems that the idea of buying AMD is only compelling from a graphics perspective, or perhaps to keep AMD's x86 business out of the hands of a competitor (although the cross-licensing deal between AMD/Intel would make this difficult for a competitor, anyway).

AMD doesn't really seem to be a compelling take-out target in a world where ARM is so pervasive and where everybody is investing heavily in graphics. There's still probably a good amount of value in AMD's GPU IP, but the value will diminish as others ramp investments and AMD cuts R&D. In short, AMD needs to build value organically to drive a meaningful share price increase.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 04, 2014, at 6:24 PM, KenLuskin wrote:

    Foundries are the single most expensive things to build in all of technology. They cost on the order of $12 billion, and they have roughly 1,800 days of life. Intel, over the past three generations of foundry technology, has been able to wring a decreasing game out of each generation. They rely on this game. And so the game is shrinking while the cost of the foundries is growing. That’s an unfortunate trend to be a part of.

    They require the client side of the business to keep their foundries full. If you have 1,800 days of foundry life, every day that it’s not 100 percent full, you’re destroying money. So much so—I remind you that there was an earthquake in Taiwan. TSMC announced that they lost a day and a half on a foundry. That was a material event, that the earthquake had interfered with the production of a foundry. What terrifies Intel, all day every day, is empty foundries. That’s what they’re facing right now.

    Their sole advantage on the high end, which they’ve been able to maintain because of foundries, is dependent on the client-side business being able to fill foundries. Now their foundries are looking empty. Their gross margins on the high end are shrinking because of it. Now they’ve gone to others and said, “Would you like to use our foundries?” But if you talk to anyone who’s tried to use their foundries, they’re impossible to use.

    TSMC is built from the ground up to be a merchant foundry. Everything they do is about how a third party can deliver a part all the way through. Intel’s designed toward their rules. Every bit of tuning and optimization is not designed for you. You cannot be tuned for yourself and suddenly decide, “I’m gonna open up and be a merchant foundry.” That’s why they’ve had such an absence of success there. But they have to say that, because everybody knows their foundries are going to be empty. Once the foundries are empty, you short the stock.

    Andrew Feldman

    Founder of SeaMicro, and head of AMD server division

  • Report this Comment On February 04, 2014, at 7:07 PM, KenLuskin wrote:

    AMD is NOT for SALE!!!

    Dubai owns 20% and is NOT selling out on the cheap!

    They are INVESTING in the SEMI business for the LONG TERM!!!

    Putting another $9 to $10 BILLION into Global Foundries!!!

    Going to BLOW Intel OUT of the WATER!!!

  • Report this Comment On February 04, 2014, at 9:27 PM, keeperoftheq wrote:

    How soon Ashraff forgets that AMD is the only chip maker that bridged ARM with the X86 architecture. AMD will be able to take market share away from Intel in the server space.

    SeaMicro high-density, low-power servers

    Over the last decade the requirement for higher capacity servers has increased significantly, which has resulted in a corresponding increase in power consumption by these data servers. While traditional approaches to mitigate these power inefficiencies have focused on the microprocessor, SeaMicro takes the more holistic approach of considering multiple technology domains, including developing custom silicon, to deliver high-density, low-power servers optimized to handle the most common internet workloads.

    Designed to replace 60 1 RU dual socket quad core servers, SeaMicro’s flagship product, the SM10000-64HD integrates 768

    64-bit x86 Intel Atom cores, top of rack Ethernet switching, server management, and application load balancing in a single 10 RU "plug and play" standards-based server. (((The SM10000-64HD uses 1/4 the power and takes 1/6 the space of today's best in class volume server without requiring any modifications to existing software.)))

    Look out Intel. The new servers from AMD are out to get you

  • Report this Comment On February 04, 2014, at 9:28 PM, keeperoftheq wrote:

    AMD ARM server 1/10 the cost of Intel server

    .

    AMD has finally taken the wraps off its upcoming 8-core 64-bit ARM SoC, codenamed Seattle. Seattle (officially designated Opteron A1100) is a server-class clip, with four or eight 64-bit ARM Cortex-A57 cores. The part, which begins sampling in March, is aimed squarely at the low-power server market, where AMD hopes that the SoC’s low cost ((((about one tenth the cost of competing Intel Xeon parts)))) can wrestle some market share away from Chipzilla. Performance-wise, AMD only gives rough figures, but it appears that the top-end A1100 will be around 2.5x faster than AMD’s current low-power Jaguar-based server chip (the Opteron X2150), while maintaining the same TDP.

  • Report this Comment On February 04, 2014, at 11:00 PM, techy46 wrote:

    Intel buying AMD would never ever pass DOJ anti-trust cops. Intel does not need AMD it needs LTE.

  • Report this Comment On February 05, 2014, at 9:25 AM, rav55 wrote:

    Justice would never allow Intel to buy AMD unless maybe nVidia was granted a license to x86.

    There is no way that Justice Department would allow Intel an absolute monopoly on the x86 ecosystem.

    They also would not allow Intel to buy-out nVidia as Justice really likes competition.

  • Report this Comment On February 05, 2014, at 1:18 PM, mycardbrokedown wrote:

    WTF... Ashraf... never go completely retard... This article is so retarded in so many ways it's insane!

    Intel doesn't need AMD, nor do they want it...

    Intel doesn't need NVIDIA, they already have all the NVIDIA patents and will probably renew the lease for another 4-6 years or so.

    What intel needs however is vision and leadership... Intel has not innovated anything noteworthy in the last 5 years, it has reused, retargeted, incremented & improved... with good results mind you but still nothing world shattering.

    AMD is not for sale, NVIDIA is not for sale... It's not like Intel can just take over all the floating shares and call it a day even hinting to this shows your deep misunderstanding of how the equity market works...

    Buying AMD yields complete x86 monopoly which is a monopoly in anything beyond fanless tables up to big core servers. Even hyper dense servers have a very thin ARM line...

    Buying NVIDIA is hilarious because Jen-Hsun Huang will probably ask to be CEO of Intel in case of a "merger" or alternatively will ask for 25bn$ or even more... Remember the ridiculous claims he made when AMD offered to buy NVIDIA? Well certainly you don't...

    All in all Rory Read would be a cretin to accept a buyout for less then 25BN$ which Intel will NEVER rake out even if they would have that kind of free floating cash (which they don't they have in the 10bn$ region as far as I remember).

    If you Ashraf think that AMD would sell for it's market valuation right now which you hint by not mentioning that intel could possibly have financial troubles investing this kind of money and inheriting a 2.5bn debt on top of it you're simply put retarded...

    Plus Intel floats with a huge manufacturing risk that's why they actually NEED at least 10BN$ free float... it is enough for one node to not pan out and an entire manufacturing branch goes dead or stagnates which costs in the billions... a potential 25BN$ hole in Intels pockets would totally destabilize the company... it would be the ATI buyout all over again.

    For intel to buy either one of these companies would mean total disaster as to what shares goes... Because either one of these would increase risks tremendously and shareholders would start to dump shares like mad - the same happened at the ATI buyout...

    For an Intel fanboy like yourself suggesting this welll you guessed it retarded....

    Go read some tech history come back when you grow up... geez... this guy... I'm amazed that fool.com still accepts publishing this kind of "article" by this kind of "journalist"

  • Report this Comment On February 06, 2014, at 3:45 PM, mauric4 wrote:

    Ubiquitous. Check it out.

    Opens up, keeps opening up, & removes all doubt.

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