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Advanced Micro Devices Eyes Xilinx

New Deal Could be Worth $30 Billion

In the fast-moving semiconductor industry, one giant deal could come together and reshape the landscape as early as this week. Advanced Micro Devices Inc. (AMD) appears poised to purchase its competitor Xilinx Inc. (XLNX) in a blockbuster $30 billion deal.

In Santa Clara, California AMD produces chips for both desktop and laptop computers in addition to parts used in gaming consoles like the increasingly-popular Xbox and PlayStation. Nearby in San Jose, Xilinx makes chips for cell phone communications, data centers, and the auto and airplane industries.

Xilinx’s sales have suffered in recent months, as it depends heavily on Chinese markets for its business. Before the Trump administration hit pause on business with Huawei, the Chinese tech company was responsible for 6% to 8% of Xilinx’s total revenue, according to analysts.

Chip Industry Grows During Pandemic

AMD has seen robust gains this year. While many industries suffered decreased growth and other challenges during the COVID-19 pandemic, demand for PCs and gaming consoles is at an all time high. In the second quarter of 2020, AMD’s revenue surged 26%, hitting $1.93 billion. AMD’s stock climbed nearly 90% over the course of this year, causing its market value to swell to $100 billion. Given those dynamics, industry watchers believe it’s possible AMD will acquire Xilinx in a stock transaction.

The acquisition of Xilinx will help AMD compete more effectively with rival Intel Corp. (INTC). Both Intel and Xilinx produce special microchips called FPGAs, which stands for field-programmable gate arrays. As their name implies, these chips can be programmed in the field after they’ve left the factory. FPGAs are extremely valuable in 5G infrastructure, military work, and radar systems.

Merger Activity Comes Back to Life

Mergers and acquisition activity was quiet at the start of the pandemic, but this new deal is yet another sign that companies once again feel emboldened to make moves. For example, another deal to look out for involves NextEra Energy Inc. (NEE), which began talks with Duke Energy Corp. (DUK) recently. These discussions could potentially result in this year’s biggest deal at $60 billion.

Many analysts thought mergers would slow even more as the election approached, but the potential AMD and Xilinx deal suggests acquisitions could continue—at least in the semiconductor industry, which may end up with three of the largest deals this year. Other deals include Nvidia Corp. (NVDA), which acquired Arm Holdings for $40 billion, and Analog Devices Inc. (ADI), which bought Maxim Integrated Products Inc. (MXIM) for over $20 billion.

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