The AMD-Xilinx deal presents more risks than the Nvidia-Arm deal

The AMD-Xilinx deal presents more risks than the Nvidia-Arm deal - im 247189Nvidia's announcement a month ago of a plan to acquire Arm Holdings for $ 40 billion was followed last week by another massive semiconductor deal: the potential purchase of Xilinx by Advanced Micro Device (AMD) for about $ 30 billion.

The semiconductor industry is at a tipping point

Intel suffered from a number of execution issues that opened the door for several competitors including AMD (AMD shares at NASDAQ), Nvidia and Qualcomm to make gains in Intel's sandbox.

Additionally, Nvidia's acquisition of Arm changes the intellectual property (IP) licensing landscape of chips that could turn many original equipment manufacturers (OEMs) and cloud suppliers into chip makers.

As a result, Nvidia would have a clear opportunity to compete more in the central processing unit (CPU) rather than the graphic processing unit (GPU) space, where it has mainly concentrated.

In short, it is clear that Nvidia's acquisition of Arm has a significant impact on the semiconductor industry. But would an AMD acquisition of Xilinx return similar acceleration, leading to big growth?

Benefits for AMD

AMD's acquisition of Xilinx would add significant revenue - approximately $ 3 billion a year, based on the final four quarters. In addition, it would offer the company a more robust business than the data center - the high-end field-programmable gate array (FPGA).

Xilinx is arguably Intel's main competitor in that space. Simply put, these programmable chips are critical for some applications such as automotive and data center chips.

This capability would also make AMD better able to develop and modify next-generation chips on the fly to build generic CPUs and GPUs, as well as application-specific integrated circuits (ASICs), which have quickly become an important growth area for a multitude of companies. sectors.

Perhaps also that AMD sees this as an opportune time to take market share from Intel. With its share price growth - nearly tripling in a year - it would be a good time to use its market cap to acquire new revenue and capabilities.

The risk of the acquisition

It's also important to note that AMD's impressive growth hasn't come through acquisitions in recent years. In fact, the company hasn't made a noteworthy acquisition since Lisa Su became CEO in 2014.

The last major acquisition the company made more than a decade ago was ATI and it didn't go very well. But Su changed the face of the company. Of course, the company needs to wonder if $ 30 billion is a price too high, especially given the vast growth opportunities that Nvidia will realize in its $ 40 billion acquisition of Arm.

AMD's acquisition of Xilinx would be another indicator of a semiconductor industry on the move. And while AMD, Intel, Qualcomm, Nvidia, Marvell and others push for growth, the market benefits from the innovation created.