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AMD will buy Xilinx for $ 35 billion in stock, offers a forecast for pink profits

AMD topped expectations with third-quarter results.

Paul Sakuma photography

Advanced Micro Devices Inc. announced on Tuesday morning that it plans to acquire Xilinx Inc. in a $ 35 billion stock deal, confirming recent speculation.

also provided early publication of its financial results for the third quarter, which were to come out after the final bell. The company posted adjusted earnings per share of 41 cents on revenue of $ 2.8 billion, up from 18 cents and $ 1.8 billion, respectively, a year earlier. Analysts polled by FactSet expected 35 cents earnings per share and $ 2.56 billion in revenue.

Shares of AMD fell 3.5% on Tuesday morning trading, while shares of Xilinx rose 9%.

AMD said in a statement that Xilinx XLNX,
+ 9.39%
The deal “will create the industry’s leading computing company in the industry, significantly expanding the breadth of AMD’s product portfolio and customers in various growth markets, where Xilinx is an established leader.”

The company expects the combination to be “immediately rising” for margins, earnings per share and free cash flow, and expects the deal to close by the end of the 2021 calendar. AMD also expects the deal to generate operating efficiencies of about $ 300 million in the first 18 months completion of the transaction. These synergies will be realized mainly in the price of goods sold, infrastructure sharing and “rationalization of common areas”.

Xilinx shareholders will receive a fixed exchange rate of 1.7234 shares of AMD ordinary shares for each share of Xilinx ordinary shares they hold. The exchange rate assumes about $ 143 per share for ordinary Xilinx shares. Xilinx shares recently changed hands for just under $ 125.

Baird analyst Tristan Gera wrote that the deal looks like a “neutral” move in the near future for AMD. “However, the increase, which begins in 2022, will be timely given our expectations of a slowdown in AMD’s market share gains in both computers and the data center next year,” he wrote. Gera doubts that AMD will be able to change Xilinx’s revenue growth rate in the medium term.

It has a neutral rating and a target price of $ 70 for AMD shares.

For the third quarter, AMD reported revenue of $ 1.67 billion for its computing and graphics segment, up 31% from a year earlier, and $ 1.13 billion for the enterprise, embedded and semi-consumer segment, with 116%.

CEO Lisa Soo said on AMD’s revenue that the company had recorded record quarterly revenue from client and server processors. Sales of Ryzen processors “more than offset” lower graphics sales, Su said. In the servers, she pointed to advanced implementations of AMD processors by large hyper-scale partners.

Opinion: Will Intel’s fight be a profit for AMD?

The company expects fourth-quarter revenue of $ 2.9 billion to $ 3.1 billion, while analysts tracked by FactSet modeled $ 2.6 billion.

AMD’s results and forecast suggest that the company is gaining a stake at the expense of Intel Corp. INTC,
according to Raymond analyst James Caso, Intel shares fell about 2% in Tuesday’s session.

AMD’s outlook, which predicts 7% consistent revenue growth, is “in stark contrast to Intel’s report, which demonstrates a sharp weakness in the data center and suggests that the loss of shares has certainly contributed to Intel’s poor performance.” Caso. It has a market rating for AMD shares.

See more: Intel data center sales fall more than expected

AMD shares have added 15% over the past three months as the S&P 500 SPX,
has increased by 5%.

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