Advanced Micro Devices (AMD) is in talks to acquire Xilinx, Inc., and a deal could be announced as soon as next week. Based on the latter company’s market capitalization, the Wall Street Journal pegged the transaction’s value at around $30 billion.
Despite the coronavirus pandemic’s negative financial impact, the semiconductor industry has seen substantial consolidation this year.
Why AMD Wants to Buy Xilinx
AMD wants to buy Xilinx to expand its presence in the global electronic components sector.
Like many chipmakers, the firm experienced a massive spike in sales this year because of the global health crisis. Corporations and consumers have purchased its products in large quantities to facilitate a widespread transition to remote work. The company’s soaring revenue has pushed its market capitalization past $100 billion, which gives it tremendous buying power.
Accordingly, AMD wants to expand into some new segments to bolster its presence within the microchip industry.
Xilinx is a leading vendor of field-programmable gate arrays (FPGAs) with a market value of just under $26 billion. Its products are primarily used by telecom with data center, automotive, telecom, and aerospace. If AMD buys the company, it will establish a foothold in all of those sectors.
Given recent developments, Xilinx is likely open to a merger proposal.
Last month, the U.S. Department of Commerce enacted new regulations to penalize firms that sell certain semiconductor products to Huawei. Before the government agency issued its new export controls, the Chinese telecom provided Xilinx with an estimated 6 to 8 percent of its annual revenue.
Consequently, the chipmaker’s stakeholders could view a corporate buyout as a promising way forward.
Semiconductor Industry Consolidation
Despite its massive reported financial terms, the AMD-Xilinx merger would not rank as 2020’s biggest semiconductor segment consolidation announcement.
In mid-September, Nvidia revealed it would acquire Arm from the Softbank Group Corp. for $40 billion. If the deal goes through, it will be the largest chip sector merger in history. Moreover, the graphics card vendor completed its takeover of Mellanox for $6.9 billion in April.
In addition, Analog Devices negotiated a deal to purchase Maxim Integrated for $20 billion in July. This year also saw Infineon Technologies close its $9.7 billion acquisition of Cypress Semiconductor, and Yageo finished its $1.8 billion takeover of KEMET.
The Wall Street Journal notes the consolidation of the electronic components sector stands in contrast to other industries. Because of the pandemic’s economic impact, merger and acquisition activity is down 18 percent globally and 40 percent in the United States from 2019.
Provided it moves forward, AMD’s proposed takeover of Xilinx will definitely impact the entire semiconductor field. But with almost 3 months left in 2020, its status as this year’s second-largest component segment transaction is in doubt.