Amd - a Microprocessor Production Company's Takeover of Radeon

AMD, a microprocessor production company's takeover of Radeon, a graphic processing unit producer was a backward integration the size of which was unlike any seen before in the tech industry. At $5.4b, not only was it highly risky for various technical reasons which would possibly result in a massive loss of customers on both ends, with ATI losing customers who make Intel motherboards, coupled with the possibility that end-users who want Nvidia graphics will have to buy Intel, thus reducing profit at parent AMD's end. It was also a highly leveraged buyout, with a 2.5b loan taken out.

Together at acquisition date they had a combined firm value of $7.2b.

VP of AMD said that ‘The keys for AMD to make the merger work and recoup its sizable investment will be to remain focused on its business and revenue without being distracted by the takeover, and pushing forward with innovative, integrated solutions'

Something went wrong though.

By 2008, AMD-ATI were trading at a firm value of under $4b and posted 7 consecutive quarters of losses and nearly collapsed. Among the reasons for which were heavy debt due to the massive loan taken to part-finance the acquisition.

By 2009, AMD had reduced ATI's value by a total of $3.2. There was still a lot of room for AMD and its graphics business to take maximum advantage of the merger with ATI, showing that they had not, 3 years later fully made use of the synergy resultant from the integration. Amd would also have posted a loss, but for a $1.25b settlement from Intel on an antitrust (monopoly) lawsuit.

By close of business in the year 2010, however, they posted profits of $1.65b. Industry analysts say that the technology inside the Fusion chips produced by ATI, and upon which AMD is now innovating upon and launching improved versions of may possibly be the strongest argument in favour of the