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AMD CEO Lisa Su on $35 billion all-stock deal with Xilinx
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The semiconductor industry is experiencing historic consolidation, thanks to a wild rally in the stock market.
In the past six weeks, two of the biggest three acquisitions ever in the chip industry have been announced, after AMD said on Tuesday that it’s buying Xilinx for $35 billion. Last month, Nvidia agreed to acquire Arm from SoftBank in a deal worth $40 billion.
The only deal keeping those two from being the largest in history was Avago’s $37 billion purchase of Broadcom, which was announced in 2015. The company assumed the name Broadcom.
Both Nvidia and AMD are taking advantage of run-ups in market value to bulk up in the data center, where cloud deployments and new workloads are driving hefty spending. Nvidia shares are up 162% in the past year, while AMD’s stock has climbed 141%. In the universe of large-cap tech companies, only software vendors Zoom and Shopify have performed better.
AMD’s purchase of Xilinx is all stock, and Nvidia is paying mostly stock to SoftBank for Arm, along with some cash.
“They both are using their stock appreciation to conduct M&A,” said Matthew Bryson, an analyst at Wedbush Securities who has the equivalent of a buy rating on AMD and Nvidia. “Technology within the data center market is diversifying and I think both of these companies believe they can better serve that market with a fuller range of solutions.”
AMD has been going head-to-head with Intel in the market for server chips. AMD said at its analyst day in March that it expects data center revenue to account for 30% of total sales by about 2023, up from 15% in 2019. That was before purchasing Xilinx, which develops programmable processors and powers networking and storage products.
“Together, we will be a stronger strategic force powering the next generation datacenter,” AMD CEO Lisa Su said on Tuesday’s conference call after the announcement.
Nvidia comes at the data center market through its graphics processing units (GPUs), which improve the performance of servers, particularly when heavy artificial intelligence algorithms are involved. Arm specializes in smaller chips for a whole range of connected devices, especially mobile devices like smartphones.
Nvidia plans to bring those technologies together to handle more advanced data center workloads.
“Today, the Internet connects billions of people to giant cloud data centers,” Nvdia CEO Jensen Huang said on the call with analysts after the announcement. “In the future, trillions of devices will be connected to millions of data centers, creating a new Internet of Things that is thousands of times bigger than today’s Internet of people.”
Intel, meanwhile, has been lagging a market that it once dominated. The company said earlier this week that quarterly revenue in its data center business fell 7% from a year earlier, missing analysts’ estimates. The stock is down 19% in the past year, the second-worst performance among large tech companies, behind only Cisco.
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