Semiconductor designer Advanced Micro Devices (AMD) is set to buy Xilinx in a $35 billion all-stock deal.
The deal, which AMD expects to close at the end of 2021, will create a combined company with 13,000 engineers and a completely outsourced manufacturing strategy that relies heavily on Taiwan Semiconductor Manufacturing (TSMC).
Gartner says spending on global data center infrastructure is projected to increase 6 percent to $200 billion in 2021. Data center spending will dip 10.3 percent in 2020 due to restricted cash flow during the pandemic.
AMD president and CEO Lisa Su said: “By combining our world-class engineering teams and deep domain expertise, we will create an industry leader with the vision, talent and scale to define the future of high performance computing.”
The two U.S. firms have benefited from a more nimble approach to grab market share from Intel, which has struggled with internal manufacturing.
AMD has long been Intel’s main rival for central processor units (CPUs) in the personal computer business.
Since chief executive Lisa Su took over AMD in 2014, she has focused on challenging Intel in the business of data centers that power internet-based applications and services and are fuelling the rise of artificial intelligence and fifth-generation telecommunications networks.
Xilinx has also been working to penetrate data centers with programmable processors that help speed up specialized tasks such as compressing videos or providing digital encryption. Its primary rival in the area, Altera Corp, was scooped up by Intel for $16.7 billion in 2015 in what was then Intel’s largest-ever deal.
The tie-up comes at a time when Intel’s manufacturing technology has fallen years behind TSMC’s. AMD, which spun off its factories nearly a decade ago, has rocketed ahead of Intel with chips that perform better.
The performance edge helped AMD gain its best market share since 2013 at slightly less than 20 percent of the CPU market, which has in turn pushed its shares up 79 percent this year, Reuters reported.
Xilinx also uses TSMC’s factories, called “fabs” in the industry, to make its chips, with both U.S. companies using modular designs that let them swap out different pieces of a chip to avoid bottlenecks or delays.
AMD’s Su will lead the combined company as chief executive, with Xilinx’s CEO Victor Peng serving as president responsible for the Xilinx business and strategic growth initiatives. The companies expect the deal to generate $300 million in cost savings.
Bernstein analyst Stacy Rasgon said there is a danger that a major acquisition in an adjacent chip market could distract AMD’s leadership while Intel fights to regain market share.