In response to AMD’s planned $30bn takeover of semiconductor maker Xilinx, industry analysts believe amD may be able to complete the deal in a stock-based manner to avoid a repeat of the near-bankruptcy caused by the acquisition of ATI, which may be the only viable way.
As AMD’s CEO, Lisa Su’s success was to avoid some of the mistakes made by her predecessor. Now that AMD is in the middle of a multi-billion dollar acquisition, it is clear that mr Su is learning from AMD’s past failures and writing a new chapter.
AMD is reportedly in talks with Salings about the proceeds of the merger. The deal could be as big as $30bn, making it AMD’s biggest ever acquisition. It is reminiscent of a similarly bold deal amD made in 2006 that left AMD mired in debt and on the brink of bankruptcy.
For now, Wall Street analysts generally believe that Mr. Su is able to complete the latest deal. This shows that investors and customers are confident in her ability to deliver high-quality products on time and to successfully reduce debt. AMD shares fell 3.9 per cent on Friday, but that’s a relatively good number given the company’s trading history. At the same time, it means AMD’s share price has risen by more than 2,000 per cent since Su Zifeng was appointed CEO at the end of 2014.
Chris Caso, an analyst at Raymond James and Associates, an investment research firm, said: “This deal makes a lot of sense, especially given amD’s use of stocks to close the deal, which may be the only way to close the deal.” Investors can also realize that AMD is using its recent bullish stock to buy Thering’s steady cash flow. “
AMD has come a long way since 2006. At the time, AMD bought ATI, a graphics chipmaker, for $5.4 billion in cash and stock. At the time, AMD was booming and taking market share from rival Intel. At the same time, share prices and revenues are growing rapidly.
But under Mr Su’s predecessor, Hector Ruiz, AMD runs a network of manufacturing plants that require billions of dollars a year to keep up with Intel. AMD gradually lost market share due to delays in new product launches due to chip design issues.
This has led to a downward spiral in AMD’s revenues and profits, which makes it difficult to repay the debt arising from the ATI deal. When Su Zifeng took over in 2014, AMD’s share price hovered around $2, and analysts began to doubt AMD’s survival.
Today, AMD has abandoned expensive factories and outsourced manufacturing to TSMC. Today, TSMC’s production capacity exceeds Intel’s.
AMD’s soaring share price, which closed at $83.10 on Friday, and lower interest rates give it new ways to pay for the $30 billion deal. Some analysts, including Mr. Casso, believe that most of the deal is expected to be in the form of shares.
But Jason Pompey, an analyst at Fitch Ratings, believes the sharp rise in AMD’s share price could make Selings’ management and investors reluctant to sign equity-based takeover offers because they fear amD shares may not have much room to go up.
It will be crucial to achieve the right balance. Anand Srinivasan, an analyst at Bloomberg Intelligence, said $10bn in debt financing was the maximum amD should consider and debt reduction was the preference. “AMD has made debt reduction a central part of its strategy,” Siniwasan said. “
Nevertheless, in times of overconfidence with AMD, Su Zifeng is likely to make “ATI”-style mistakes again. Last year, AMD spent $1.7 billion on research and development, or a quarter of revenue. Therefore, any episode in the implementation of the strategy by Su Zifeng will be expensive. Developing microprocessors takes hundreds of millions of dollars and years of work. Problems can take months to discover, let alone solve.
At present, Selings’ gross margin is 67%, which is 20 percentage points higher than AMD’s profit margin. In the most recent quarter, Selings generated $230 million in free cash flow, $78 million more than AMD. Another risk for AMD is that the deal makes sense and AMD will not be the only company interested in Selins.
Chris Rolland, an analyst at Investment Bank Susquehanna, said: “Selings is one of the last great assets available for acquisition in the semiconductor market, with other potential bidders likely to include Qualcomm and Broadcom. “