Mergers and Acquisitions with a focus on merger integration

AMD Acquisition of ATI: A Case of Indigestion?

Has AMD’s acquisition of ATI made it a stronger player in the semiconductor industry? Or, have they stumbled in managing the merger integration of the two companies? This report from Dow Jones raises some interesting questions:

UPDATE: AMD Still Digesting ATI Merger, But Some Predict A Comeback

Dow Jones

SAN FRANCISCO (Dow Jones) — A year after gobbling up ATI Technologies, Advanced Micro DevicesAMD" > Inc. is still reeling from indigestion, and analysts say it remains to be seen if the $5.4 billion deal was worth it.

Still, many are positive on the deal’s long-term potential, especially as it may give AMD (AMD) a much-needed boost in its bitter battle with arch-rival Intel Corp.

Two weeks ago, AMD reported a $396 million loss for the third quarter, weighed down by a $120 million charge related to the merger. That stands in sharp contrast to the 43% jump in earnings at Intel (INTC) for the same period.

AMD’s stock has also underperformed, losing about 35% of market value so far this year. Intel shares have picked up nearly 30% for the same period.

The article quotes an industry analyst who notes:

In a research note last week, Freedman predicted that “the logic of the AMD- ATI integration will be begin to bear fruit” closer to 2009. That’s when the company plans to launch a line of more sophisticated computer chips, as part of its Fusion program.

Is the downturn in AMD’s fortunes a result of an acquisition gone awry (and the problems with merger integration)? Graphics chip maker Nvidia has seen its stock decline in 2007. Could it be that the graphics chip market is to blame?

Doug Freedman of American Technology Research concludes:

“the logic of the AMD- ATI integration will be begin to bear fruit” closer to 2009.

It will be interesting to do the post-mortem on the deal at the close of 2008.

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