AMD says there 's plenty of reason to be bullish on the deal .
reason
amd say plenty reason bullish deal
AMD says there 's plenty of <m> reason </m> to be bullish on the deal .
Both chipmakers are bullish about combining , but a key issue for them will be convincing skeptics they should join together in the first place
Advanced Micro Devices ( AMD ) Chief Executive Hector Ruiz waxed metaphorical as he described his company 's acquisition of ATI Technologies ( ATYT ) .
Chipmaker AMD , hoping to gain a leg up on a resurgent rival Intel ( INTC ) , on July 24 ended months of speculation by saying it would buy graphics chipmaker ATI for about $ 5.4 billion .
`` We will move from being neighbors to being a family , '' Ruiz told analysts on a conference call .
The two companies have long partnered in the competitive market for chips that run personal computers and consumer electronics .
But under the same roof , the companies will focus on innovations that are particularly attractive to corporate and mobile-computing customers , Ruiz believes .
The enlarged chipmaker will combine AMD 's strength in fast-computing power with ATI 's specialty in delivering detailed graphics onto a single , low-cost chip .
But the problem with families-especially those formed by multibillion-dollar corporate mergers-is that they often end up dysfunctional .
Promised cost savings and sales increases do n't always pan out , and integration of disparate cultures and operations is frequently fraught with value-destroying rifts .
Maybe that 's why Intel and Nvidia ( NVDA ) , the companies ' two biggest rivals , found a lot to smile about on July 24 , the day the deal was announced .
`` I thought it was just impossible to get a gift like this , '' crowed Nvidia CEO Jen-Hsun Huang , in an interview with BusinessWeek.com .
ATI is `` basically throwing in the towel , leaving us as the only stand-alone ( graphics chip ) company in the world . ''
Intel , the world 's largest graphics-chipmaker , declined to comment specifically on the deal .
But company execs have noted Intel continues to improve its own graphics chipsets and that it expects to deliver platforms of products , like Centrino , that AMD can not easily match .
Investors were n't too sure how happy the AMD and ATI family will turn out to be , either .
AMD shares fell almost 5 % on July 24 , to $ 17.40 , extending recent declines fueled by concern AMD will be the biggest loser amid an escalating PC industry price war .
`` The assumption of a significant amount of new debt and the need to address integration issues at a time when AMD has been seeking to step up its competitive pressure in a fierce environment with Intel is likely to weigh on AMD 's share , '' Lehman Brothers semiconductor analyst Tim Luke noted in a report .
Indeed , AMD and ATI could be distracted from their core businesses for months as they combine into a company with $ 7.3 billion in annual sales and 15,000 employees sprawled through Canada , California , and Texas .
Credit-rating agency Fitch Ratings lowered its outlook on AMD 's debt to negative from positive on concern the chipmaker 's debt-to-capital ratio will jump to 37 % from less than 10 % because of a $ 2.5 billion term loan it is using to partially finance the deal .
The merger also could lock ATI out of the business of supplying graphics chipsets to Intel-based PCs , worth about $ 90 million a year in revenue .
ATI chipsets connect to Intel 's processor through what 's known as a front side bus , which serves as a highway for transferring data .
But AMD , under a different licensing deal with Intel , is not allowed to use that front side bus .
`` We are evaluating the deal , and have got a lot to figure out how it would fit in with our existing agreements with both ATI and AMD , '' Intel spokesman Chuck Mulloy says .
And while ATI and AMD are busy ironing out their new relationship , Intel and Nvidia are rolling out some heavy-hitting chips of their own .
Intel and its PC partners on July 27 begin shipping for the first chips in a brand-new PC architecture called Core 2 Duo ( see BusinessWeek.com , 7/24/06 , `` Intel Sharpens its Offensive Game '' ) .
First up will be desktop chips , followed closely by new energy-sipping chips for notebook PCs .
Core 2 Duo is expected to wrest the performance crown in the mainstream PC market from AMD for the first time in more than two years .
AMD will not get a chance to grab it back until mid-2007 , when it is fully ramped on a new manufacturing process .
Meantime , Nvidia is prepping to deliver a new high-end graphics chip later this year that company executives herald as the biggest leap forward in nearly a decade .
After a high-profile delay in delivering a new chip in 2001 , Nvidia has been steadily taking market share from ATI in the lucrative market supplying screaming-fast graphic cards to the discriminating gaming community .
AMD says there 's plenty of <m> reason </m> to be bullish on the deal .
The company has its sights on markets where Nvidia and Intel are not as strong .
AMD President Dirk Meyer hopes to use ATI 's chipset business to develop an energy-sipping combo processing and graphics chip that can be paired with software partners to deliver a platform better able to compete with Intel 's new vPro offering .
Intel has won early praise from software companies and large businesses for vPro , which bakes security and virtualization directly into the chip .
With vPro , tech administrators managing thousands of PCs could partition parts of the system from workers-a feature that could keep viruses from rapidly spreading across corporate networks .
And ATI 's growing business of providing graphics chipsets to cell-phone makers Nokia ( NOK ) and Motorola ( MOT ) also will give it up a leg up over Intel , he said .
Intel recently sold its cellular chip business to Marvell Technology ( MRVL ) for $ 600 million .
`` Customers want to get better mobile offerings and more stable commercial offerings , but they want to know that we 're still going to offer them the ability to choose , `` Meyer says .
Even if relations between AMD and Nvidia turn frosty and ATI loses Intel 's business , AMD executives predict a combined offering would bring in an additional $ 300 million in revenue in the PC realm alone for every share point gained against Intel .
Still , not everyone 's sold. Pip Coburn , founder of tech advisory firm Coburn Ventures , notes AMD has pinned its success on a range of variables .
`` I do n't want six reasons , '' Coburn says,
`` I want two reasons , two good reasons . ''
AMD 's Meyer says he knows the company has some heavy lifting ahead .
`` The integration task is going to require focus , '' he says .
The biggest job , however , may be convincing skeptics this family was worth forming in the first place .