Wednesday, October 28, 2020

AMD Shares Edge Lower Despite Upbeat Q3 and Mega Deal

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News shaping
the markets today

     

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.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of the interest rate decision from the Bank of Canada.

Context: The Canadian dollar rose versus the greenback on Tuesday, with growing investor concern around the resurgence of covid-19 cases in the US.

Details: The US dollar declined versus most of its major rivals, in tandem with the sell-off on Wall Street on Monday. US stocks remained under pressure yesterday, despite the downturn in the previous session, with only the Nasdaq 100 recording gains.

There was some positive news from the US, with durable goods orders rising 1.9% in September, versus the consensus estimate of 0.5%. However, investors focused on the continued rise in covid-19 cases in various parts of the US and Europe. Markets also remained worried about the prospects of fresh stimulus being announced before the US Presidential election.

The USD/CAD settled lower at $1.3187 in yesterday’s session. Investors are also gearing up for volatility with the US election only a week away.

What to watch: Investors will keep a close eye on Bank of Canada’s interest rate decision. The central bank lowered rates in March to 0.25%, when the pandemic hit the country. Policymakers have not made any changes to the rates since then. With the economy showing some signs of recovery, the Bank of Canada is expected to keep rates unchanged. 

Other Markets: European trading indices closed lower on Tuesday, with the FTSE 100, DAX 30 index and CAC40 down by 1.09%, 0.93% and 1.77%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

France’s consumer confidence, South Africa’s annual inflation rate, Spain’s retail sales, Italy’s producer prices, Saudi Arabia’s money supply M3 and bank lending growth as well as the US MBA Mortgage Applications, EIA’s crude oil inventories and wholesale inventories.