Tuesday's Market Minute: What AMD, XLNX Deal Means For Investors

Xilinx, Inc. XLNX is soaring this morning on news that semiconductor company Advanced Micro Devices, Inc. AMD has agreed to buy the company in a $35 billion all-stock deal. AMD has stated it expects the deal to close at the end of 2021. More significantly, it will further intensify AMD’s competition with data chip-maker Intel. The newly-formed entity will operate on a 100% outsourced manufacturing strategy that will rely on Taiwan Semiconductor. Both companies are aiming to reduce cash burn in this move, compared to Intel Corporation INTC, which has seen losses as a result of its internal manufacturing. Xilinx and AMD expect this acquisition to generate roughly $300 million in cost-savings.

AMD CEO Lisa Su said in regards to the deal, “There are some areas where we’re very strong, and we will be able to accelerate some of the adoption of the Xilinx product family… and there are some areas where Victor [Xilinx CEO] is very strong, and we believe that we’ll be able to accelerate some of the AMD products into those markets.”

Under this deal, Xilinx shareholders will receive 1.7 shares of AMD common stock for each share of Xilinx common stock, valuing Xilinx at $143 per share. AMD shareholders will own about 74% of the joint company, and Xilinx shareholders will own 26%.

Separately, AMD also reported its quarterly earnings Tuesday pre-market, earlier than expected. The company reported a beat on both the top and bottom line and forecasted its 4Q sales will be above consensus estimates. AMD now expects its quarterly revenue to be about $3 billion, compared to analyst estimates of $2.63 billion, and this quarter’s revenue of $2.8 billion. As of Monday’s close, AMD has returned over 79% year-to-date versus Xilinx’s return of just 17% year-to-date.

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