Xilinx Spikes on Report AMD May Buy It. Analysts Have Their Doubts. -- Barrons.com | XLNX Message Board Posts

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Msg  9 of 9  at  10/9/2020 8:05:37 PM  by


Xilinx Spikes on Report AMD May Buy It. Analysts Have Their Doubts. -- Barrons.com

 Xilinx Spikes on Report AMD May Buy It. Analysts Have Their Doubts. -- Barrons.com
Dow Jones
By Eric J. Savitz

Xilinx shares spiked Friday after The Wall Street Journal reported that the company was in advanced talks to be acquired by Advanced Micro Devices in a deal that could be worth $30 billion or more.

Citing "people with the matter," the Journal said that a deal between the AMD (ticker: AMD) and Xilinx (XLNX) could come together as soon as next week.

Some analysts, however, are lukewarm on the deal, pointing to the disappointing returns on the 2015 acquisition by Intel (INTC), AMD's rival, of Altera, a Xilinx competitor.

AMD is best known for making microprocessors, competing with Intel in the market for chips used to power personal computers, game consoles, and servers. Xilinx makes chips called field programmable gate arrays, or FPGAs, used in communications, data center, and industrial applications. Intel is now also Xilinx's chief rival, thanks to the $16.7 billion acquisition of Altera.

Semiconductor analysts are not super-excited about the prospect of an AMD/Xilinx combination.

Citigroup analyst Christopher Danely writes in a research note that he thinks Xilinx is likely to decline. "We think there is a good chance Xilinx management is against being acquired given its dominant and improving position in the high-margin PLD [programmable logic device] market," he writes. "As per unconfirmed news, Qualcomm (QCOM) made an offer to buy Xilinx several years ago, which, if true, was likely turned down, and we expect Xilinx management is likely to do same thing."

Danely also sees limited synergies in an AMD/Xilinx combination. "Although Xilinx has pushed hard to gain share in the data center market, we have stated for years that the market for PLDs in data center and AI applications is limited given the inferior processing power of PLDs," he writes. "While we believe the PLD business model is excellent, with long term operating margins in the 20s and low to mid-single digit growth, we do not believe it would create any synergies. We would note Intel buying Altera hasn't really created any synergies either."

New Street Research analyst Pierre Ferragu is lukewarm on an AMD/Xilinx deal. "We see the combination as opportunistic," he writes. "Both companies are subscale in the leading-edge logic world, dominated by giants like Intel, Broadcom (AVGO), Qualcomm, and Nvidia (NVDA), and neither has the organic opportunity to change that. This, combined with healthy valuation on the side of AMD, makes the deal something attractive for management teams, but without tangible value creation for shareholders. It won't lead to material synergies and won't affect the competitive landscape."

Truist analyst William Stein likewise has some reservations; he also points to what has been a lackluster result from the Intel/Altera pairing. "Ultimately it's hard for us to imagine how AMD will significantly improve its fortunes by acquiring Xilinx," he writes. "We expect any interest from AMD in Xilinx would be to combine AMD's CPU position with Xilinx's parallel compute capabilities (inherent in FPGAs) for datacenter customers. This is a remarkably similar strategy to Intel's acquisition of Altera several years ago; however, that combination never resulted in the swell of business that Intel may have expected."

Xilinx said it does not comment on rumors and speculation. AMD did not immediately respond to a request for comment.

Xilinx shares were up 13%, to $119.88, giving the company a market cap of about $29 billion. AMD shares were down 2.3%, to $84.51. 

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