The chip giants’ mid-life crisis is raging. With the gradual failure of Moore’s Law, the market for consumer computer chips slowed down and stalled. Giants, which used to focus on PC chips, are starting to “find their way”. Intel has stretched its broad product chain longer. In addition to PC and server chips, it’s also starting to add AI and the Internet of Things.
Infinity announced last month that it would buy ARM, hoping to increase the likelihood of its own product development by integrating more upstream chip technology.
AMD is not willing to fall behind. Last week, the Wall Street Journal reported that AMD was in talks with Xilinx Inc., the maker of FPGA chips, to acquire the latter. According to Selings’ current share price estimates, the final deal could be worth more than $30 billion, no less than Aweda’s acquisition of ARM.
If the deal eventually lands, it means AMD will take a more aggressive approach to cutting-edge areas such as cloud computing and AI, exploring the wider Blue Sea. It will also become increasingly competitive with Intel.
The middle-of-life crisis at the chip factory.
Over the past 10 years, the entire PC industry has experienced “lost 10 years.”
Since 2010, global PC shipments have declined in volatility, and the PC processor and graphics markets have naturally shrunk. Despite a series of measures, such as improving product positioning, raising prices, and trying to sustain their own revenue growth, the industry’s big trends are irreversible, and the chip industry around PCs is hardly going to explode any more.
In this market, Intel and IND are at the top of the CPU and GPU market share, respectively, while AMD plays the role of “second-in-two” in both areas.
AMD has a long history of working in both the CPU and GPU fields.
For all three companies, the “mid-life crisis” is a big problem that can’t be overcome. In the age of mobile devices, device makers, represented by Apple and Huawei, are looking for self-study chips. They look for ARM to buy solutions, design their own chips, and then find TSMC foundry production, perfectly bypassing the chip factory. Traditional chipmakers have lost their voice in the mobile age, and with the popularity of ARM architecture, such models have even begun to “antiphagy” PCs. In June, Apple announced that it would phase out Intel chips on macs in favor of self-developed ARM chips.
In the last two years, Intel has been responsible for all the processes of chip design and manufacturing because of its adherence to IDM’s chip manufacturing model, resulting in a delay in the iteration of the chip process process. In the process process by TSMC, Samsung and other chip foundels later on, shook off a position. In July, Intel announced at its earnings conference that the 7nm chip had a low yield during trial production and would be delayed by six months to a year until the end of 2022. The news sent Intel’s stock down nearly 20 percent in a week.
AMD abandoned its own design and production of the “big package” model, and TSMC, in cooperation with the introduction of process-leading Intel products. OVER the past year or so, AMD’s market share in the X86 architecture chip sector has soared from 23% to 37%, and its share price has doubled 1.8x in the past year. At the end of July, AMD surpassed Intel by market capitalisation for the first time.
Such a “counter-attack” does not mean that AMD has turned around this salty fish, because the future of the industry as a whole is not bright. But soaring market capitalisation has given it a chance to change its fortunes.
The acquisition of “Snake Swallow Elephant”.
In terms of cash reserves alone, AMD does not have the ability to acquire Selins.
Selings is not a simple small company. Its main product, the FGPA chip, is a programmable SoC. This programmable feature allows FGPA chips to be reprogrammed over and over again to accommodate different types of computing work, providing prototyping support for chips with many segmentation functions.
FGPA chip technology is mainly used in cloud computing, 5G communications, radar and other fields, there are more mature application markets. What’s more, it has application potential in many decentralized computing scenarios, such as on-board systems, industrial control systems, video codec acceleration cards, and so on… The potential for the future is enormous.
As the world’s largest FGPA chipmaker, Selings does business with giants such as Tencent, Ali, Amazon and Huawei, accounting for more than half of the market. Selings has revenue of approximately $3.1 billion in fiscal 2020, the most important of which is Huawei. Analysts estimate that revenue from Huawei could account for 6% to 8% of Selings’ total revenue.
This may also be one of the important reasons why Selings is willing to commission AMD. Over the past year, Selings’ business has been hit hard by the U.S. government’s ban on Huawei’s technology exports. Revenue for the fourth quarter of fiscal 2020 was down 9% from a year earlier and net profit was down 20%. AMD has just obtained permission from the U.S. Department of Commerce to supply Huawei, and if the acquisition succeeds, Serlings is expected to resume supply to Huawei.
Around the government, customers, competitors, Selings needs more leverage to protect the future of the storm. For AMD, acquiring Selings means broader prospects and more possibilities. The combination of the two companies is more like a merger than a takeover.
Selings is already the largest company in the FGPA space, Xilinx.
In the second quarter of this year, AMD achieved revenue of $1.93 billion, up 26% YoY, and net profit of $157 million, up more than four times YoY. This is already a very good report card for AMD, but it is still not enough to buy Selings, which has a market capitalisation of more than $20 billion.
AmD is likely to buy Selings in a share swap, the Wall Street Journal reported. AmD’s share price has soared 89% so far this year to market value of more than $100 billion. Using its ultra-high-value equity to achieve mergers and acquisitions is AMD’s best option.
At the same time, post-merger risks cannot be ignored. Eat the next company equivalent to 30% of its total market value and bring in a new business that is close to 50% of its annual revenue, which will have a huge impact on the future management, decision-making, and future direction of the entire enterprise.
In 2006, AMD, then valued at $30 billion, acquired ATI, a graphics card maker, for a total of $5.4 billion. AMD’s cash flow was hit by a major crisis and was even on the verge of bankruptcy to pay $4.2 billion in cash from the acquisition. AMD could face a similar situation with the acquisition of Selings.
The final battle of the chip industry.
Another important reason that Selings and AMD are working together is that they have a common competitor, Intel.
In 2015, Intel spent $16.7 billion to acquire Altera, then the leading FGPA vendor, for programmable chips. In the years that followed, Intel acquired a range of AI chip and algorithmic systems companies, including Nervana Systems, Movidius, Mobileye, in an attempt to build its advantage in cloud computing and AI.
Intel has not achieved particularly significant results. In the FGPA field, Celings grew rapidly, quickly overtaking Altera and widening the gap. But Intel still dominates the major COMPUTER and server CPUs, and it’s still “saving big.”
With the acquisition of Selings, AMD will continue to compete with Intel in new areas.
Capital markets have been inactive this year due to the outbreak and the overall economic decline. According to Dealogic, global mergers and acquisitions fell 18 percent, while the U.S. fell 40 percent.
Against this backdrop, the entire semiconductor industry is accelerating the reshuffle, whether it’s Aveda’s acquisition of ARM or AMD’s acquisition of Selings, in tens of billions of dollars. These traditional chipmakers are reaching out to the upper reaches of the industry to find an answer for their future.
If the two deals eventually land, the chip sector will face a new final battle. The new battlegrounds are cloud computing, AI, the Internet of Things… Intel, IND and AMD are on the new starting line.