By Sreeja Mamillapalli, Siddharth Tripurani, Aman Singla (New York University), Nathan Walemba (University of Oxford)
Overview of the deal
Acquirer: Advanced Micro Devices, Inc
Target: Xilinx Inc
Total Transaction Size: 35 Billion USD
Closed date: Q4 2021
Acquirer advisor: Morgan Stanley, Bank of America
Target advisor: Credit Suisse, DBO Partners
On Tuesday 27th October, Advanced Micro Devices Inc (AMD) agreed to buy Xilinx Inc in a $35 billion all-stock deal. This acquisition is expected to help AMD get the upper hand in the battle between Intel and themselves for the data centre chip market. Upon the deal completing, the expected cost synergies will be $300M within 18 months are the deal closes and AMD will have 76% and Xilinx the remaining 24%.
Company Details: Acquirer – Advanced Micro Devices
Advaced Micro Devices Inc (AMD) is a global semiconductor company with two main business segments being the computing & graphics segment and the Enterprise, Embedded and Semi-Custom segment.
Founded in 1969, headquartered in Santa Clara, United States CEO: Lisa Su
Number of Employees: 11,400
Market Cap: $93.8B
EV: $89.3B
LTM Revenue: $6.7B
LTM EBITDA: $724M
LTM EV/Revenue: 10.32
LTM EV/EBITDA: 62.5
Company Details: Target - Xilinx Inc
Xilinx is an American technology company focusing on developing cutting edge processing platforms. Xilinx are pioneers in their industry having invented the field-programmable gate array, programmable system-on-chips, and the adaptive compute acceleration platform.
Founded in 1984, headquartered in San Jose, United States
CEO: Victor Peng
Number of employees: 4,900
Market Cap: $30.1B
EV: $28.3B
LTM Revenue: $3.16B
LTM EBITDA: $1.03B
LTM EV/Revenue: 9.52
LTM EV/EBITDA: 30.23
Projections and Assumptions
Short-term consequences
In the short run, there are many go-to-market synergies (GTM). Xilinx’s automotive and communications segment are very adept where AMD lacks such a concrete service line in the same fields. However, AMD’s CPU and GPU product offerings are leading the industry: especially with the expected high fourth quarter performance as Microsoft and Sony are both releasing new consoles. The consolidation of these companies’ services allows them to offer a lot more to the customer starting immediately. In light of the coronavirus pandemic, the role of telecommunication companies managing large data bits has drastically increased. Together, AMD and Xilinx can work together to compete with industry giants such as Intel when producing chips for computers, cars, and aerospace. AMD has more access to programmable wireless telecommunication network chips by buying Xilinx, which brings them ahead of many telecommunications companies planning to build fifth-generation mobile high-speed networks. It also enables the company to further expand in the lucrative sector of cloud data center components, which is currently dominated by Intel Corp. The current political and economic setting of America will play a role in the momentum of the companies from the get-go. Regardless of the acquisition, there will be struggles when it comes to navigating the problems posed by the US-China trade war. From increasing tariffs to intellectual property theft, both economic climates pitted against each other are leading to whiplash and probably economic slowdown.
Long-term Upsides
The deal will bolster the annual research and development budget for the company to $2.7 billion dollars, putting AMD in a better position to challenge industry leaders. The all-stock transaction will increase the value of the combined company to $135 billion, increase AMD's addressable market to $110 billion and be immediately beneficial to AMD's margins, cash flow, and earnings per share.
Two of the most anticipated changes will be new packaging technology and adaptive computing technologies. This would reduce the server requirements for moving data and administrative functions. Xilinx’s microchips called field-programmable gate arrays, or FPGAs, can be added to data-center servers to improve the speed of AI applications: the same field that AMD is looking to make some headway in.
Risks and Uncertainties
Both companies will have to chalk out a combined strategy and solution selling approach to navigate the market against Intel. Dr. Su is highly commended for her ability to utilize resources, especially with the highly complementary and key enablers that Xilinx brings to AMD’s portfolio. The struggle will arise from limitations created by the Chinese government's distrust with the American officials due to tariffs and anti-competitive strategies employed by the Trump administration. The upcoming elections will surely affect the true mutual benefit of this merger.
At the same time, devices in some of Xilinx’s traditional markets, such as automotive and networking, are increasingly taking on more of the attributes of computers. AMD currently doesn’t have access to those customers, while Intel does. A collective effort to address the same users as Intel will require a strategic timeline as Intel continues to make strides with its industry-leading chips.
All in all, there aren’t any blatant red flags that the companies expect to face in the near future as their product and service lines, management teams and consumer markets seem to fit together as seamlessly as possible. Analysts are heavily banking on the reputed management of Dr. Su, so only time will tell if the success on paper is going to reflect in the market.
“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.