By Tony Glover - Technology Editor
23 July 2006
ADVANCED Micro Devices (AMD), the world’s second largest microchip producer after Intel, is discussing a merger with Canadian chipmaker ATI Technologies. A deal would value ATI at around $5.5bn (E4.35bn, £3bn).
At the weekend, Hector Ruiz, chief executive of US computer chip giant AMD, was reported to be holding takeover talks with Dave Orton, chief executive of specialist graphics chip maker ATI Technologies.
On Wall Street, late Friday night, there was speculation that an agreement on a merger could be announced this week.
According to US sources, AMD is prepared to pay a premium of more than 20% on ATI’s current share price. This would value the Canadian- based company at around $5bn On Friday, AMD shares rallied on takeover rumours following a fall when the company failed to meet analysts’ expectations for its second quarter despite a 53% year-on-year growth in sales.
Wall Street is not in a forgiving mood with firms that fail to meet investor’s expectations.
A merger of these two microchip giants would shake up the US computer chips industry by closing the gap between AMD and its main rival market leader Intel.
Over the past three years, AMD has consistently won market share from Intel, once the undisputed king of the computer chip sector, despite AMD’s lack of a graphics chip arm.
The war between Intel and AMD intensified this year with a price-cutting battle between the two manufacturers which has slashed both companies’ profits.
Last week, Intel disappointed the market with a 57% year-on-year drop in net income in the second quarter to $885m and a warning that third-quarter revenue will be below expectations.
But there was some concern on Wall Street that buying ATI at such a premium could prove be a burden for AMD.