UPDATE: Who wants to buy AMD?

Posted by Rick C. Hodgin

Opinion - What would it cost to purchase a major CPU and GPU manufacturer?  In the case of AMD today, about $4.73 billion--which could be the bargain of the decade if AMD executives could make their vision of becoming the leading computer and CE platform company a reality.  And the truth is, all it might take to turn AMD around is an investment of R&D resources.  If it was done right, buying AMD could prove to be a master stroke.

We here at TG Daily were left a bit speechless and scratching our heads after AMD concluded its analyst conference call yesterday.  We were not really surprised that AMD admitted to screwing up the introduction of its quad-core CPU, as there wasn’t really another option for them to explain the recent events.  What we were surprised by however, was a somewhat inconsistent message to analysts about how the company would perform in the current quarter, and their promise to return to profitability in the second half of next year.  Wall Street apparently feels the same way as AMD's stock price continues its decline even today.

So, when we stepped back and looked at AMD's past 12 months, its multi-delayed next-generation CPU debacles, and the unclear guidance on future financial points, it made us wonder:  Has AMD become a very attractive acquisition target?  Think about it:  A company could come in right now and buy AMD for less than what AMD paid for ATI.  In so doing, they would become a major player in the CPU, GPU and consumer electronics chip arena in a snap.  Sound possible?

The TG Daily editors have given it some thought and here's what has come up.

Who are you?

Who might be interested in playing around with this potentially landscape altering buyout idea?  Two companies immediately lept to our mind:  Nvidia and Samsung.  Some people might first think of IBM, but the relationship IBM has with AMD seems to be one firmly entrenched in the "they're our customer" camp.  Nvidia, on the other hand, just might be able to pull it off.  They currently have around $1.9 billion cash on hand.  That's enough for 40% of the AMD buyout at its current price.  Samsung was able to rake in a hefty $2.39 billion last quarter in net profit alone.  They have cash on hand of around $5.8 billion.

Nvidia

Nvidia buying AMD would open up the whole monopoly issue, yet at the same time Nvidia wouldn't have to keep ATI.  They could buy AMD with the published, disclosed intention to sell off ATI for parts.  In such a move, Nvidia would acquire what was once a potentially very profitable chip making company, while simultaneously diminishing their current significant GPU market threat.  They would also augment their abilities to create powerful chipsets, integrate CPUs directly into new CE apps, flush out AMD's plans for the CE markets, and build an overall stronger product line from A to Z.  Rumors about Nvidia wanting to become more than just a GPU company surface from time to time, and if the company really wanted to go this way, this could be the best chance they will ever get to jump into the CPU arena.

Nvidia currently develops all of their GPUs via a comprehensive simulation process.  When they begin manufacturing first-run silicon, it is already known to be production ready.  In fact, Nvidia's first silicon is packaged and sold in stores because by the time they reach that stage, all of the bugs have been worked out via simulation.  This includes developing software drivers, working out performance issues, product extensibility, compatibility, heat generation, determining power requirements, and everything else.  It's all handled through their advanced simulation developmental processes.  And in truth, such simulated developmental paths might really be a good fit for AMD and their current manufacturing issues.  It might even be a way for AMD to do more with less of an R&D budget.

Samsung

Samsung is a very large corporation, #2 in the industry.  They have a full global foothold in several product areas.  They could bring AMD's technology to the world in a major way.  The new Samsung Athlon, Opteron and Phenom lines could, for the first time, truly compete both in volume and price with Intel.  Also, by taking some of the extra cash they have on hand, coupled with AMD's projected "break even" strategy between now and Q3 2008, such an investment would likely yield a very positive financial return in mid-2009 through 2010 timeframe.  This is when we'll see the first Bobcat and Bulldozer products, those which will enable future CE devices and powerful destkop machines.

An interesting side aspect of this thought is that Samsung is already the world’s second largest chip company, behind Intel.  And Intel considers Samsung to be its biggest competitive threat.  Samsung moving into the x86 field could bring a whole new dynamic to this market.

Other buyers?

Who are some other possible buyers?  For example, Google has $12 billion cash on hand.  Microsoft has $21.6 billion.  Ok, admitted, neither one of them would likely have any interest in a hardware company, but they could both buy AMD without even breaking a sweat.  And, with the current acquisition frenzy going on between Google and Microsoft, who would be really surprised by such a move?   And remember:  Both would afford AMD a fighting chance by giving them what they need most:  Cash.

Conclusion

Today, AMD’s stock price traded around $8.50, which is a four-year low for the company.  The little green chipmaking company that could can be bought today for $4.73 billion in cash.  That's 3.6% less than it would've cost a buyer yesterday, which is not a good trend.  AMD has good technology.  They have vision, they have talent, they have capacity.  It just appears very clear that they don't have the cash necessary to bring it all into sharp focus.  They're struggling right now, and that could be remedied by a cash infusion from a friendly little buyout.

Your thoughts?

UPDATED December 14, 2007, 07:59pm:  Based on one of the commenters, the author, Rick C. Hodgin, is disclosing that he does not own any shares of AMD, Intel, Samsung, Nvidia, IBM or any other company, nor does he work for or have affiliations with any of those companies.