AMD Completes Xilinx Acquisition And The Obvious Synergies Spell Great Potential

This morning AMD announced it completed its acquisition of Silicon Valley adaptable computing powerhouse, Xilinx. The all-stock transaction is valued at $35 billion, with Xilinx stockholders receiving 1.7234 shares of AMD common stock and cash in lieu of any fractional shares of AMD. Further, the company’s combined TAM (Total Addressable Market) expansion estimates take AMD from an $80 billion TAM to $135 billion, so there’s a lot to be excited about for shareholders. Of course, AMD’s CEO Dr. Lisa Su is more than bullish as well. “The acquisition of Xilinx brings together a highly complementary set of products, customers and markets combined with differentiated IP and world-class talent to create the industry’s high-performance and adaptive computing leader,” noted Dr. Su. For me, though the deal is accretive to margin, EPS and cash flow out of the gate, it’s the complementary nature of the combined IP and technologies portfolio that makes this deal — the largest in semiconductor history mind you – so well-played.

AMD And Xilinx – More Than The Sum Of Its Parts

AMD’s core businesses are largely driven by CPU (Central Processing Unit) and GPU (Graphics Processing Unit) technologies and platforms for client devices, the data center, supercomputing, embedded applications and game consoles. While Xilinx’s core business is driven by FPGA (Field Programmable Gate Array)-based technologies that are employed as adaptable accelerator solutions in embedded industrial, automotive, data center AI, wireless and wired networking, aerospace, video broadcast/streaming and more. You can think of FPGA technologies as a third type of processing resource – CPUs, GPUs and FPGAs – though FPGAs have a superpower of sorts due to their adaptability. With the ability to be reprogrammed on the fly, in-band and without dropping a packet, FPGA-based accelerator solutions are great for applications that have changing and evolving workloads, like AI inferencing, SmartNICs, 5G cellular base stations, even algorithmic trading and analytics, in addition to many others. FPGA’s also can help accelerate time-to-market for design engineers that otherwise don’t have the luxury of long ASIC (Application Specific IC) design cycles.

Beyond The Hardware, Software And Solutions Prowess Is Key For Design Wins

There’s no question the 5G, data center networking, and automotive markets are big business that AMD has limited penetration and product coverage in currently, so on the surface the Xilinx deal makes a lot of sense. However, founded back in 1984, Xilinx is now on a $4B annual revenue run-rate driven by a full platform solutions approach, which has been the cornerstone of the company’s success over the years.

It used to be that FPGAs were a powerful but black box kind of technology that only the most skilled system design engineers could tap into for their solutions. Today, however, much has changed and Xilinx’s approach to software design tools, like its Vitis Unified Software Platform, allows design engineers from all walks of life and disciplines to target its FPGA-based solutions in their own native programming languages and with vast libraries supporting a host of applications, from AI to video analytics, networking, blockchain technologies and more. Further, Xilinx also builds development platform board-level and kit products for much of its portfolio that help engineers and developers get up and running with its technologies as quickly as possible.

In this day and age of multi-processor and multi-accelerator powered systems, one size doesn’t fit all, and having the software and solutions tool suite to integrate everything together is critical. This is another area where Xilinx will help AMD flesh out full soup to nuts solutions with CPUs, GPUs and FPGAs. Beyond these complementary synergies of course, AMD also obviously brings Xilinx vast resources in manufacturing, chiplet design technologies and interconnect, along with strong pull-through with customers looking for a more complete platform solution of co-optimized technologies. Couple these synergies with the fact that Xilinx’s business tends to be sticky, with a very stable, predictable run-rate and great margins, just due to its programmable and adaptable nature, and you can see the attraction on the part of AMD.

Xilinx CEO Victor Peng will lead the new AMD Adaptive and Embedded Computing Group (AECG) and report directly to Dr. Lisa Su. In 2015, when Intel made a major play for Altera, in a deal worth about $17B, the company seemed to flounder with integration of the teams, technologies and combined solutions. I don’t see that happening with AMD and Xilinx. Xilinx has a very well-established go-to-market model now that is peaking at just the right time, with the critical platform development and software tools in place for the new multi-accelerator reality that design engineers must harness to be successful. In addition, AMD has been on an execution tear in recent years, and I see Dr. Su’s leadership style working very well with the combined teams. I think there’s a lot of opportunity for growth here, and perhaps that projected $135B expanded TAM number might even be a little conservative. Time will tell, but this deal makes a lot of sense, and it will be fascinating to watch as the teams come together in the days ahead.