ATI and AMD — What Am I Not Understanding?

ATI and AMD merger







So ATI (ATYT) and AMD (AMD) are merging; or perhaps AMD is buying ATI. Either way, there’s something I’m not getting here.

ATI derives a lot of its value from sales into Intel (INTC) platforms. I don’t know what percentage of its sales go into Intel platforms, but it’s got to be the vast majority. Since, you know, the vast majority of platforms out there are Intel platforms…

So the price AMD paid for ATI must include expected future revenues for products for Intel platforms. But obviously, Intel isn’t going to be real friendly about licensing bus technology to ATI, now that ATI and AMD are one and the same.

So I’d expect ATI to lose a whole lot of revenue in the near future as sales into Intel platforms decrease significantly. And until now, ATI Crossfire was the preferred graphics card for Conroe-based systems. Surely that’s going to change in short order. I doubt Intel will stand idly by, promoting its chief competitor’s products.

Of course this puts Intel in a tight spot as well. Apparently, Intel hasn’t been so friendly to Nvidia lately. But now Intel has to choose between ATI and Nvidia, and every dollar ATI gets goes to support development of competing x86 processors, so that means Intel likely has to start working more closely with Nvidia.

That would seem to give Nvidia an upper hand in negotiations with Intel. Of course Nvidia isn’t out of the woods either. Nvidia products are sold to enthusiasts, who have until recently been more excited about AMD products. But now that AMD has a top-notch graphic card maker in house, they may be less willing to play with Nvidia.

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So basically at this point the whole ecosystem seems to be thrown for a loop. Longer term, there might be some strategic advantage to AMD from this merger. Rumors have flown that AMD was funding Stexar, which was allegedly developing a DSP co-processor of some sort, but that they just stopped funding Stexar after the ATI acquisition. That might mean that AMD is planning for ATI to develop some kind of vector coprocessor, which would certainly seem to be up ATI’s alley.

This makes some sense. Graphics cards have been getting pretty powerful, and it’s only a matter of time before software vendors start offloading some general purpose functionality onto the graphics card. It might be insurance for AMD to make sure that it starts doing that before being a victim of ATI doing it.

Anyway, makes for an interesting week and some interesting news. At the end of the day, I’m still left scratching my head. It seems to me like ATI under the AMD umbrella is worth a lot less than ATI outside of the AMD umbrella. But AMD has to pay the higher price, so it seems like they lose money in the deal right off the bat. But I’m sure Mr. Ruiz has it all figured out.

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