What’s happening: Shares of Advanced Micro Devices fell on Tuesday despite the chipmaker reporting better than expected results for the third quarter and announcing plans to acquire rival Xilinx.
What happened: AMD surprised investors by issuing its earnings before the opening bell, which was scheduled for release after the markets closed.
The company’s move to acquire Xilinx for a hefty $35 billion in an all-stock deal is expected to pose tough competition to Intel.
How were the results: Advanced Micro Devices reported strong growth in sales and earnings, with both metrices exceeding market expectations.
- Revenues grew 56% to $2.801 billion, handsomely beating the consensus view of $1.8 billion.
- Adjusted earnings came in at 41 cents per share, up a whopping 128% from the same quarter last year. The figure surpassed expectations of 35 cents per share.
Why it matters: The semiconductor market has become increasingly competitive, with behemoths like TSMC (Taiwan Semiconductor Manufacturing Company), Nvidia, Intel, Broadcom, Texas Instruments and Qualcomm fighting for space.
Amid this, the relatively smaller AMD is looking to expand its market share, viewing Intel’s recent manufacturing process woes as an opportunity. To strengthen its footprint in the red ocean, AMD decided to follow the footsteps of Intel, which had acquired Altera (Xilinx’s main rival) several years ago.
Nvidia, too, has been following the M&A route to increase its offerings. The company recently acquired ARM Holdings PLC from SoftBank Group Corp in a deal valued at $40 billion, in a bid gain microprocessor capabilities.
Under the latest mega deal in this space, AMD has agreed to offer Xilinx shareholders an exchange ratio of 1.7234 AMD shares for each Xilinx share they own. The offer represents a per-share value of $143 a share, which is around 25% higher than Xilinx’s closing price of $114.55 on Monday.
The deal is projected to close by the end of the next year, subject to approval from required authorities.
“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,” CEO Lisa Su said.
How shares responded: AMD’s shares declined 4.1% to close at $78.88 on Tuesday. Shares of Xilinx, on the other hand, jumped 8.6% to settle at $124.35.
What to watch: Investors will closely track the status of the required approvals for AMD to complete the acquisition of Xilinx. Markets will also monitor the production issues at AMD’s much bigger rival, Intel.