UPDATE: Advanced Micro Devices Acquires ATI

The $5.4-billion deal puts AMD in control of the all-important chipset for client systems. System builders have long been calling for AMD to take a more active role in controlling the quality and consistency of components available to the channel.

The acquisition, rumored to be in the works since May, is expected to close in the fourth quarter, according to Sunnyvale, Calif.-based AMD. Eighty percent of the purchase price is in cash and 20 percent is in stock.

"This [acquisition] will enable us to deliver better turnkey, platform-level solutions to our customers," AMD President and COO Dirk Meyer said on a conference call Monday morning.

By acquiring ATI, AMD becomes a "real player" in the system builder channel, said Doug Phillips, vice president of products and solutions at Seneca Data, a large custom-system builder in North Syracuse, N.Y.

"This is exactly what we have been asking for," Phillips said. "We have been asking for AMD to take ownership of the system builder ecosystem."

Intel has long offered a "platform approach" to system builders by coupling its processors with motherboards and chipsets--the key building blocks of a system--that are pretested and certified. That gives system makers a stable platform to offer to demanding corporate customers that want to control IT support costs.

"We've telling AMD for years that they need to make their own motherboards and other platform components to better compete with Intel in the corporate space. I think this is a good step in that direction," said Todd Swank, director of marketing at Nor-tech, a system builder in Burnsville, Minn. "Obviously, if Intel trusted ATI enough to be the first third-party chipset manufacturer for their motherboards, they must have a pretty solid solution."

Pat Moorhead, vice president of global channel marketing at AMD, said the channel will benefit the most from better integration of the ATI chipset in AMD's Commercial Stable Image Program (CSIP), launched last year to boost AMD's presence in the corporate market.

"We have super-tight integration with design and validation and the development of firmware and software that goes with that," Moorhead said.

AMD's mobile platform also will benefit from the stability, as will ATI's discrete graphics option that supports all of new features in Windows Vista, Microsoft's next operating system due to ship in January, he said.

In addition, AMD plans to integrate ATI's channel group with its own, reporting to Henri Richard, AMD's executive vice president of sales and marketing, according to Moorhead. AMD executives said that although they will focus on a more platform-centric model with the ATI acquisition, they pledged to keep all of its technology "open" so others can continue to innovate. Intel's platform offerings tend to be made up of proprietary chipsets, utility software and its own branded motherboards.

The ATI acquisition also will give system builders more access to emerging opportunities, according to AMD executives. AMD Chairman and CEO Hector Ruiz said the chip maker would pursue putting integrated graphics capabilities directly on the CPU and developing specialized chips for new markets, such as digital televisions and other consumer devices.

ATI already makes a variety of chips for digital TVs, handheld devices and gaming systems. The Markham, Ontario-based company also provides graphics processors for third-party graphics card makers and offers its own branded line for system builders and consumers.

Ruiz said the deal also will help further AMD's efforts with Torrenza, a project to couple specialized processors with AMD CPUs, connected through the company's super-fast HyperTransport link. Coprocessors expected with that project include graphics processors, media processors and data (math) coprocessors.

Aside from the benefits for system builders, AMD's acquisition of ATI leaves some unanswered questions.

ATI has been an important chipset supplier for Intel, which late last year lost sales when it couldn't meet demand for some chipsets, particularly in the desktop space, where system builders do the bulk of their business. AMD executives said they won't proactively seek to terminate the ATI-Intel agreement, but they expect Intel to discontinue its partnership with ATI at some point.

An Intel spokesman said it's too early for Intel to comment on AMD's ATI acquisition. But he noted that ATI isn't the only potential supplier of chipsets and that the acquisition is not yet a done deal. He declined to comment on industry speculation that Intel may step in and try to acquire ATI.

In addition, ATI competitor Nvidia has been developing a corporate stable image program with AMD using its own chipset to help stabilize the corporate desktop platform. AMD executives said they expect to continue working with Nvidia for the long term.

An Nivdia spokesman said the graphics and chipset maker would continue with its stable image program. "There are still some synergies with AMD that don't go away," he said. Any strategy change from AMD would be ways away, he noted.

AMD also maintains its own stable image program and recently instituted first-call support for motherboards. The goal, AMD channel executives have said, is to streamline and simplify support for VARs and system builders serving the commercial market.

*EDITOR'S NOTE: Story update adds system builder comment, more AMD and ATI channel and stable image program information, and input from Intel and Nvidia.