AMD Is Said in Talks to Buy Rival Xilinx in $30 Billion Deal

Ian King (Bloomberg) -- Advanced Micro Devices Inc. is in advanced discussions to buy Xilinx Inc. in a takeover that could be valued at $30 billion, according to people familiar with the matter.

The deal could come together as early as next week, though things remain in flux, the people said, asking not to be identified discussing a private deal.

A combination with Xilinx would give AMD Chief Executive Officer Lisa Su more of the pieces needed to break Intel Corp.’s stranglehold on the profitable market for data center computer components. It would follow moves by rival Nvidia Corp., which bought Mellanox Technologies Ltd. and aims to use its pending acquisition of Arm Ltd. to grab more of that business.

Acquiring Xilinx, which makes programmable chips for wireless networks, would also help AMD expand into a new market just as telecommunications carriers spend billions to build fifth-generation, or 5G, networks.

Related:Microsoft Is Said to Pick Xilinx for Half of Azure Servers

A Xilinx takeover furthers an industry consolidation that’s quickened in 2020. Deal activity in the chip sector has surged this year, including Nvidia’s proposed $40 billion purchase of Arm. With both of the possible acquisitions, the value of pending or completed semiconductor deals in 2020 would top $100 billion, making 2020 a record year for chip deals, according to data compiled by Bloomberg.

Xilinx, based in San Jose, California, makes field programmable gate arrays, or FPGAs. That kind of chip is unique because its function can be altered by software, even after it’s been installed in a piece of machinery. Xilinx’s chips have historically been used in telecommunications equipment, but under CEO Victor Peng the company is expanding into products targeted at data centers -- where FPGAs can be used to accelerate workloads such as artificial intelligence. The other major supplier of advanced FPGAs is Intel, which acquired its market position through the purchase of Altera Corp. in 2015.

Representatives for AMD and Xilinx declined to comment on the negotiations, which the Wall Street Journal first reported.

Xilinx shares rose 13% at 10:15 a.m. in New York on Friday, while AMD shares fell 3%. Xilinx closed at $105.99 on Thursday, giving it a market capitalization of $25.9 billion, about a quarter of AMD’s value. Shares of Santa Clara, California-based AMD closed at $86.51. The stock has almost doubled this year. Analysts gave the potential deal mixed reviews.

Related:AMD Tunes New Epyc 2 Chips for Key Enterprise Data Center Workloads

“Without more details around a deal and/or AMD’s argument for a transaction, we struggle to understand the logic behind this combination,” analysts at Webush Securities wrote in a note to investors.

Under Su, who took the helm in 2014, AMD has surged back from the brink of failure. It’s made gains against longtime rival Intel in desktop computer processors and laptops. The company is also working to reverse its fortunes in the server business, where chips can cost as much as a small car. For years, Intel had relegated AMD to less than 1% of that market.

AMD’s interest in Xilinx reflects the increasing demands of cloud-services providers such as Amazon.com Inc. and Alphabet Inc.’s Google. Those companies are spending heavily on new data centers to meet the surge in demand for computing power delivered via the internet. They’re also racing to enhance services, such as search, with artificial intelligence software, and many companies are experimenting with building their own hardware to do so. That’s putting greater pressure on chip providers to advance their offerings.

For AMD investors, how the company intends to finance the deal may prove crucial in persuading them to sign off. The chipmaker has only recently shed concerns about its cash reserves and was haunted by debt incurred from a takeover of graphics chipmaker ATI Technologies in 2006. At the end of its most-recent quarter, AMD had cash and equivalents of $1.8 billion, less than several other chipmakers.

Nvidia is using stock to partially fund its purchase of Arm, while Analog Devices Inc.’s acquisition of Maxim Integrated Products Inc. is an all-stock deal. That partly reflects a huge run-up in the value of chip companies in recent years, lead by AMD and Nvidia.

Xilinx shares have not rallied as much. The stock is up 8% this year compared with a gain of 27% by the Philadelphia Stock Exchange Semiconductor Index. AMD has surged nearly 90%, making it the second-best performer, behind Nvidia.

The approval of chip-industry transactions has been complicated by the ongoing trade war between China and the U.S. The Asian country is the biggest purchaser of chips and America is home to the biggest group of producers.