The Deal Between AMD and Xilinx

By Xueyiting Wang, King’s College London

Overview of the Deal

Acquirer: Advanced Micro Devices, Inc
Target: Xilinx, Inc
Estimated value: $35 billion
Announced date: October 27th, 2020
Closed date: By the end of the 2021
Financial advisors to AMD: Credit Suisse and DBO Partners
Financial advisors to Xilinx: Morgan Stanley BofA Securities

AMD, the US semiconductor design company, announced on 27 October 2020 that it was acquiring US programmable chip maker Xilinx for US$35 billion.

For AMD, the acquisition of Xilinx is not all about complementing its own consumer business, but about taking Xilinx’s data centre business. Data centres have been a mainstream development in the chip market in recent years. According to data, NVIDIA’s data centre business revenue has surpassed that of their traditional business item, the gaming business. In such a climate, AMD will seriously consider the importance of the data centre business.

AMD has also declared that the combined company will not crowd out rival suppliers of central processing units (CPUs) and graphics processors (GPUs), nor will it replace them.

“Our acquisition of Xilinx marks the next leg in our journey to establish AMD as the industry’s high performance computing leader and partner of choice for the largest and most important technology companies in the world”

AMD President and CEO Dr. Lisa Su

“We are excited to join the AMD family. Our shared cultures of innovation, excellence and collaboration make this an ideal combination. Together, we will lead the new era of high performance and adaptive computing”

Victor Peng, Xilinx president and CEO.

Company Details

Company Details: Acquirer- Advanced Micro Devices

Credits: AMD

For more than 50 years, AMD has driven innovation in high-performance computing, graphics and visualization technologies – the building blocks for gaming, immersive platforms and the data center. Hundreds of millions of consumers, leading Fortune 500 businesses and cutting-edge scientific research facilities around the world rely on AMD technology daily to improve how they live, work and play.

CEO: Dr. Lisa Su
Number of employees: 12600 (2020)
Market Cap: $134.28 billion (as of 03/09/2021)
EV: $129.32 billion
LTM Revenue: $13.340 billion (June 30, 2021) / LTM EBITDA: 2.9B
LTM EV/Revenue: 9.69

Company Details: Target- Xilinx

Credits: Xilinx

Xilinx, Inc. develops highly flexible and adaptive computing platforms that enable rapid innovation across a variety of technologies – from the cloud, to the edge, to the endpoint. Xilinx is the inventor of the FPGA and Adaptive SoCs (including our Adaptive Compute Acceleration Platform, or ACAP), designed to deliver the most dynamic computing technology in the industry.

CEO: Victor Peng
Number of employees: 4891 (2020)
Market Cap: $38.31 billion (as of 03/09/2021)
EV: $36.78 billion
LTM Revenue: $3.300 billion (June 30, 2021) LTM EBITDA: 977.83 million
LTM EV/Revenue: 11.00

Projections and Assumptions

Short-term Consequences
Upon completion of the merger, AMD shareholders would own nearly 74% and Xilinx shareholders would own the remaining 26%. After the news of the acquisition of the stake was reported in 2020, Xilinx’s share price rose by 14 percent, with a market capitalisation of nearly $30 billion. Recently, Xilinx shares rose 6.4 per cent and AMD rose 3.9 per cent, and are up about 67 per cent since the start of the year. It can be predicted that the share prices of both companies will also show a significant upward trend after the acquisition is completed at the end of 2021. Not only will the share price of both companies rise, but the market capitalisation of the companies will also increase. Moreover, there is also the possibility of a premium.

Long-term Upsides
AMD’s acquisition of Xilinx is a win-win outcome for both parties. On the one hand, it can realize the complementary industrial layout and technology advantages of both parties, which can accelerate the transformation of Xilinx into the data centre and other fields, and also make AMD’s product portfolio more diversified. On the other hand, Intel is not only AMD’s old rival in the CPU field, but also the biggest competitor of Xilinx in the FPGA field, and this acquisition can also help AMD and Xilinx gain an advantage in the competition with Intel.

Risks and Uncertainties

Xilinx’s entanglement with its old rival Altera. The situation changed dramatically after 2015 when Altera was acquired by Intel and began to challenge Xilinx frequently with the strong financial power and technical support of its parent company. It is believed that after the merger, AMD and its old rival, Intel, will open up a new competitive landscape.

The process of FPGAs has entered the 7nm node and production costs have increased significantly. The cost of continuing to upgrade and evolve FPGAs is only going to get bigger. With the increasing cash flow required for progress, there are concerns involving whether AMD can support the costs required to hit the top chip market.

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