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A.M.D. Agrees to purchase Xilinx in inventory for $ 35 billion

SAN FRANCISCO – Advanced Micro Devices agreed to pay $ 35 billion in shares for Xilinx to transform one of the pioneers in the computer chip industry.

A.M.D., best known as Intel's long-time rival in microprocessors, which power most computers, plans to use the acquisition to expand its business into chips for markets like 5G wireless communications and automotive electronics. The transaction could also be A.M.D. Get a bigger chunk of data center component sales and counter a prominent rival, Nvidia, which is also on the rise.

The all-stock deal announced on Tuesday along with A.M.D. the third quarter would come close to the most valuable acquisition in the history of the chip industry. Those boastful rights are currently held by Nvidia for the proposed $ 40 billion deal for the British chip designer Arm, announced last month.

Chip manufacturers have seen several waves of consolidation driven by factors such as duplicate product lines and cost-cutting strategies. However, A.M.D., which has some of the most robust sales in its 51-year history, expects Xilinx to grow its business while increasing profits.

Lisa Su, general manager of A.M.D., said in preliminary remarks that Xilinx would help establish her company as "the industry-leading high-performance computing company and preferred partner for the world's largest and most important technology companies."

This is the kind of reputation that A.M.D. long deprived, regarded for decades as an Intel supporter who mainly achieved lower-priced sales. But the company has recently gained an edge over Intel on some key metrics of computing performance, while its bigger rival has had technological and financial problems.

Last Thursday, Intel reported a 29 percent decline in quarterly earnings, causing the stock to fall more than 10 percent. In contrast, A.M.D. on Tuesday that its quarterly profit was up 148 percent.

A.M.D.'s stock, which traded at around $ 2 per share five years ago, is up nearly 80 percent this year, closing at just over $ 82 on Monday. The market value of A.M.D. is currently close to $ 100 billion.

Founded in 1984, Xilinx is the largest manufacturer of a class of chips that can be reconfigured for a variety of specialized tasks after leaving the factory. Such field programmable gate arrays, as they are called, have long been particularly popular in telecommunications applications such as e.g. B. cellular base stations that are now being upgraded to the latest 5G technology.

Xilinx was also one of the largest chip manufacturers affected by trade restrictions on Chinese company Huawei, one of the largest network equipment manufacturers that is one of Xilinx's largest customers. The company announced last week that sales were down 8 percent.

However, Xilinx's gross margins are much higher than A.M.D.'s, and the company continues to generate significant cash. The market value of Xilinx is currently around $ 28 billion. That reflects a sharp jump after the Wall Street Journal reported business talks between the companies on Oct. 8.

The interest of A.M.D. an Xilinx mimics a path taken by Intel. In 2015, Intel got into the same business, paying $ 16.7 billion for Altera, Xilinx's main competitor. This deal, which was partly inspired by the prospect of making Altera chips in Intel factories, didn't generate great returns as Intel's manufacturing processes lagged behind its competitors.

A.M.D. relies heavily on outside manufacturing partners, as does Xilinx – particularly Taiwan Semiconductor Manufacturing Company, which has got a head start in packaging smaller transistors on every chip. Both companies have also developed new technologies for developing new products that package multiple chips together.

The proposed transaction represents the most significant acquisition by A.M.D. eclipsed in the past, a $ 5.4 billion deal for ATI Technologies in 2006 that put the company in competition with Nvidia for chips that render images in video games. This graphics technology would A.M.D. a major supplier of chips for video game consoles. But it also saddled A.M.D. with a heavy debt burden that took more than a decade to erase.

A.M.D. Around $ 1.7 billion in cash was reported at the end of September.

The companies said the transaction is expected to close by the end of 2021. Victor Peng, the managing director of Xilinx, will continue to lead operations after the transaction is completed.

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