LegendKiller

Personally, with AMD paying a 25% premium over ATI stock and the problems this could cause, it really seems like a desperation move that isn't going to result in anything but destroyed shareholder value...ala Compaq + HP.

Any thoughts on this topic?

Cubsfan

It'll be interesting to know what Apple does now. Will all of their business shift away from ATI now?

Markel

It's an interesting move. Intel is involved in chipmaking for a huge variety of purposes in addition to CPUs. This gives AMD a much broader range of product, which will allow them to not be so dependent on revenues from CPU sales. Hopefully this will help them better weather the times when their CPU sales don't carry them. (On the other hand, it might mean they won't have to be so aggressive at cutting prices to compete with Intel.)

For a long time I kind of put AMD and Nvidia in the same camp: having an image of being the underdogs against the industry "leaders" (Intel and ATI). This merger kind of cuts across that image. For what might be entirely sentimental reasons, I would rather have seen AMD merge with Nvidia.

__________________
stay low... keep moving...

Airencracken

For the AMD+Nvidia hopes, or rather I'd like to have them remain seperate, but I don't want an ATI chipset. Bah.

__________________
"I remember my first orgasm, I just wish someone was there to share it with me..."11-05-2003 05:33 AM - Topane
They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety. - Benjamin Franklin
Religion is the sigh of the oppressed creature, the heart of a heartless world, & the soul of soulless conditions. It is the opiate of the masses. - Karl Marx
Hell is other people - Jean-Paul Sartre

verve247

I'm curious how the two companies will integrate. AMD owning ATI does not seem to help them compete against their main rival--Intel. ATI products need to work with Intel chips. Hopefully that will continue.

__________________
Vegetarian - Old indian word meaning poor hunter.

InfiniteNothing

I'm happy as long as there is competition.

LegendKiller

This is the main problem with most business combinations. Usually the premium paid over market value is justified by synergies or other cost savings generated by the combination. In most cases, these cost savings or synergies are dramatically overstated and overwhelmingly underrealized. Considering that nearly 70% of all M&A fails to create any investor wealth, it's easy to assume that this won't be any different.

Both companies produce different and highly specialized products. The chipset side, especially on ATI, is in it's infancy. ATI uses 3rd party vendors for it's FAB capacity, so that won't present any opportunities. AMD has never played in the integrated graphis market to a large extent, so that won't do much.

People rail against Intel integrated graphics, but they are more or less the same across companies, for common users and workstations.

Personally, I think AMD is in trouble. They enjoyed a smooth ride while INTC was screwing around with Netburst. Now that INTC has realized their folly, the heat will be turned up. AMD realized that they could be relegated back to Pre-athlon days status, where they can't compete with INTC on price/performance, nor sheer volume and cost savings, so they are looking for an extra edge.

In the end, this move will more than likely suck up cash and saddle AMD with expensive debt and equity that they can ill-afford if they want to stay competitive. Instead, they should focus on hammering R&D, process improvements, and FAB modernization and scaling.

After having been employed by a conglomerate that is now breaking apart and hearing the whole "synergy, cheap internal capital markets, and cross-branding" BS for more than 3 years, I have realized that it's nothing but a gimmick. Am I jaded and cynical, you bet. Am I justified by evidence? You bet.

This could be the beginning of the end of AMD being a major and upcoming player.

ray

In the long run, I think this is a wise move for AMD. By merging with one of the leading GPU developers AMD and ATI can lean on each other's products in positioning themselves with companies that would otherwise look elsewhere if they were trying to go in solo (think next generation consoles, business systems, laptops etc).

As LK has pointed out, from a short-term financial standpoint and shareholder of AMD (and former shareholder of ATYT) it may not seem like the most logical of marriages. But with every merger comes all the corporate restructurings and synergies (synergies suck by the way) which are meant to increase shareholder returns and decrease corporate expenses.

Though this merger has been rumored for a couple months now, it will be interesting to see if the rest of the semiconductor market will head in a similar direction and look to opportunities similar to this.

verve247

The good news:

http://arstechnica.com/news.ars/post/20060724-7333.html

And the bad news:

http://www.bit-tech.net/news/2006/07...ipset_license/

courtesy of digg.

LPMiller

Uh, have you checked out HP/compaq of late? They are beating up dell pretty badly and all signs point to it being a pretty good move, 3 years after the fact.

Sort term, it's going to be a bear. Long time it could end up being pretty sweet for both companies. But it usually takes a few years for it to kick in.

__________________
lpmiller
Chief News Editor
Nobel Prize Nominee
Reverend in the Universal Life Church
Once Shot A Man For Snoring Too Loud
Way Too Lazy To Change His Signature

"The strength to change what I can, the inability to accept what I can't, and the incapacity to tell the difference." - Calvin and Hobbes

LegendKiller

Ahhh, but the key to mergers is something which can be difficult to predict but has been done quite convincingly before. What would have happened had they *not* merged. Would that premium, which was dispensed as goodwill and created the destruction of billions in shareholder wealth not been wasted?

If it had been such a great move Carly would still be there.

Showtime

Initially it went so poorly that she had to go. I hoped that it would end up working out because of dells monolpoly. They still have a long, long way to go imo.


I like the AMD/ATI merger in that together they may end up making a rock solid chipset. AMD hasn't built their own mobo's and ATI hasn't gotten them right imo, but together they could make the type of rock solid chipsets that intel builds for their own CPUs. That would make the AMD chipset market competitive again just in time for the quad cores (07).

__________________
NBA REPORT 10-11/ The 3-Peat!


1948 1949 1950 1952 1953 1954 1972 1980 1982 1985 1987 1988 2000 2001 2002 2009 2010 Reigning NBA CHAMPS!

shocky123

I'm thoroughly pleased with the quality of nvidia chipsets for amd systems... I'll be very hesitant to develop on an ati platform, bah this merger, the nvidia merger would've been golden!

Bad decision in my eyes, the only thign that should come from this will benefit ATI, not AMD..IMHO
~Kyle

__________________
"me awaits onslaught of estrogen fury." -CornMonkey

"5. When your friend dates a woman that is absolutely terrible for him, and she's wrecking his life, it's your duty to openly hate her, and point out how evil she is." -ialsohaveadream

LPMiller

I can't find it now, but there was an article on...cnet? just a few weeks ago about how it WAS a great move, and how it's been proven in the course of time. These kind of mergers are always shakey at first, but that history has proven Carly correct.

Naysaying is very easy to do, but again, HP is kicking all sorts of butt right now.

Jeffbx

Given the bad news ("Intel pulls ATI Chipset License"), anyone want to lay odds on when we can expect to see an Intel/nVidia partnership?

LegendKiller

Again, it comes down to how good the companies would have been while separated. Most companies that are acquired or combined into a conglomerate lag and while they have acceptable returns, they are still not as good as they would have been seperate. Looking at the recent divestitures of many acquired companies, one can see how well they did apart from the structure.

The current results look more like "We have a bunch of rotten lemons, lets carve out the bad parts and make some lemonade", which is great, but those bad parts were caused by stupid management.

Would HP and Compaq performed much better at this point in time if they were separate? Personally, I think they would have.

Airencracken

ATI isn't very friendly to open source and nvidia is. Bah to this merger say I as well.

LPMiller

Which ignores the fact that they weren't. Especially compaq.

LegendKiller

Ok, lets boil it down to a few points.


1. More than 70% of M&A fail to deliver any investor wealth in the long-run.

2. Two companies experience problems when a whole industry experience problems.

3. They merge, experiencing more problems.

4. They are now doing better, but the industry as a whole is also.


Now, if we use Occams Razor, we could boil it down to two hypothesis.

A. Compaq and HP beat the 70% average and are only doing better combined because they are that good.

B. Compaq and HP are doing marginally better and the high tide has raised all boats.

Now, in scenario A, they would have delivered shareholder wealth. Even in scenario B, they might *APPEAR* to have build shareholder wealth, but that isn't to say that they could have done better alone. In fact, the most simple answer, that they are marginally better (with shareholder wealth still largely destroyed) and that the high tide has raised all boats, is the most likely one to be correct.

The businesses that most likely succeed after M&A are those with businesses, corporate ethics, practices, and cultures that are nearly identical. Furthermore, they are ones who paid relatively less for the acquisition/merger (low premium, unlike HPQ) and that were able to leverage more than just a name.

Frankly, considering that Dell and other companies are growing at relatively the same pace, I don't see anything to support scenario A.

Having been employed at a conglomerate of several disperate groups of companies with clumps of "synergistically aligned" companies (two timeshare companies, two rental car companies, 9 hotel brands, several travel distribution companies) and having been privy to the higher workings of said conglomerate and also studying M&A activity, I have become very sceptical of any activity in this area.

The true measure of whether investor wealth has been destroyed or suppressed is how well companies do, seperated IF they are cut into pieces. Ever Cendant company that has been spun off has done *MUCH* better than the parent company and that is happening now, as the conglomerate is being ripped apart.

There are strong cases in many financial circles that suggest that the vast majority of M&A activity, if cleaved during some point in the combination, would in fact perform better than togeather.

This, as it is though, is something similar to the "weakest link" or "slowest boat" syndrome, where slow boat party slows down the whole convoy.


I think this acqusition is a *HORRIBLE* idea borne out of desperation and little alternatives to growing organically beyond a smallish player.

As soon as they saddle themselves with competing ideologies, business propositions, external and internal relationships, and unfocused core competencies, they will see the folly of their decision.

LPMiller

ok, you can triple the word count in your posts all you want, but you are talking hypotheticals.

But the facts are, the industry as a whole is NOT improving at the same rate as HP.



But they aren't growing at the same rate. Again, Dell is losing market share to HP. Has been for the past year now. This one thing runs counter to your theory. The whole industry has been shaky for a while now, except for certain players...Like HP.

Yes, major mergers can suck. AOL/Time Warner sure did. But all signs say that HP/Compaq actually worked out, despite the naysaying. ATI/AMD may suck, may not, but using HP as a reason why it will suck doesn't work.

LegendKiller

Ok, if you think they are so strong, explain these numbers?


2003
Profit Margin:
Dell: 6.38%
HP 3.47%
2004
Dell: 6.18%
HP: 4.37%
2005
Dell: 6.3%
HP: 2.7%

Profit Growth
2003 to 2004 growth
D: 15.04%
HP: 37%
2004 to 2005 growth
D: 17.3%
HP: -32%

Revenue Growth
2003 to 2004 growth
D: 18.7%
HP: 9.36%

2004 to 2005 growth
D: 13.6%
HP: 8.4%

EPS
D: 1.42
HP: 1.25

ROA
D: 12.83
HP: 4.96

ROE
D: 75.57
HP: 9.61

P/E
12.83
13.45


So, some quick analysis...

Dell has had better profit margins, from 1.5 - 2x as much as HP over the past 3 years. Dell has also had consistantly high-teens profit growth, HP is a roller coaster. Dell has had double digit revenue growth, HP has had single digits.

Looking at relative valuation, Dell whips HP in earnings per share. Dell also kicks the living crap out of HP in Return On Assets, meaning HP is a hell of a lot less efficient using what they have. Dell has 9x the Return on Equity that HP has.

Furthermore, Dell is a better buy according to P/E ratios (leading). Trailing P/E ratio shows that HP is almost twice as over priced as Dell.


Now, HP may be taking market share, but who really cares? My whole contention is that mergers are not good for investors. They largely destroy *INVESTOR* wealth.

I really don't care if they sell more computers. The key for any company is delivering shareholder returns that are in line with the risks of the company. Selling more for less profit and then still not returning much to shareholders on volume doesn't matter.

All the merger did was create a monolithic company unable to work efficiently.

johnnymk

I have been reading that Dell is extremely concerned about the Chinese, i.e. Lenovo being able to sell laptops cheaper than them. Supposedly, that is one of the reasons that Dell is expanding their line into more and more peripherals and other items.

Well, if Dell is concerned, then HP must be worried, too.

I don't know what percent of their products are laptops, but I would imagine it is significant.

Jeffbx

That's a very valid concern -

Now that Lenovo owns the Thinkpad line, for the first time in the past five years the high end Lenovo laptop (T60p) is cheaper than the high end Dell laptop (Precision M90). Of course, the battle will be fought at the lower end of the spectrum, but if Lenovo can match or beat Dell in the low end market, then I can see Dell losing market share quickly.

However, also for the first time in 5 years, I'm seeing quality problems on the Thinkpads in higher quanitites, so we'll see what happens.


As far as HP/Compaq vs. Dell, I think LK is on the money. HP is killing themselves by trying to increase their market share. They're sacrificing quality & cutting their margins to match or beat Dell's cost just in order to stay in the game. I'm glad they're there, because they keep Dell looking over their shoulder, but I don't think they're a major concern.

Was it a good merger? Hard to say, but I think they're focused on the wrong things. They should lower their focus on the low end machines - keep them competitively priced, because there will always be people who just hate Dell & will buy the alternative. But don't sacrifice margin in order to gain market share.

They need to focus on the two things that they still do better than Dell - printers and servers. It may even now be too late for the servers, because that's been a major focus for Dell in the past few years, and they're close to the reliability of the Proliant line, and still blow them away in price.

LegendKiller

I definitely agree. Now that they have Compaq servers + HP printers, the focus is on low-end Hpaq machines?

This is one thing that people were kinda "WTF?" on when they merged. You take two companies that were relatively unfocused and in a daze and slap them together to create one massive unfocused and dazed companies who have completely forgotten their core competencies.

Personally, I do not like Dell machines. I have seen *WAY* too many die in the last 3-4 years. I don't like Hpaq machines either, although my current work notebook is a Hpaq nc6220 and is pretty nice. However, when people ask what they should buy, I now say "Well, dell sucks, IBM is no longer, and Hpaq doesn't have the greatest quality either" , so we aren't left with much.

Mergers can be great for companies. HOwever, more often than not they are marketed by people who are looking for an easy way out of a strategic crisis. That, or an easy way to get to a larger company they envision.

LPMiller

in 2005, HP stock rose 40 percent in value.

Dell's was down 20 percent.

IBM's was down 15 percent.

I mean, we ARE talking about shareholder value, right?

In may of this year "HP's net profit for the second quarter rose to $1.46 billion, or 51 cents a share, compared with $966 million, or 33 cents a share, a year earlier. Revenue for the quarter rose 5 percent, to $22.6 billion. The company said revenue would have risen 8 percent if not for the weak dollar, which cut into the effect of overseas sales."

In the quarter ending in January:


Revenue Gross Profit Gross Profit
Dell Margin
$15,183.00 $2709.00 17.8%

HP
$22,659.00 $5267.00 23.2%

Dell just announced a lower profit forcast, putting their shares at a 5 year low

HP shares just went up.

In this business, market share RULES. As does your margins, which HP has way under control right now, and Dell simply doesn't.

verve247

Actually, forget that. AMD just dismissed that as a rumor. ATI will still be suplying chipsets to Intel.

LegendKiller

1. Absolute stock price is not indicative of a whole lot, considering that it can be a poor measurement. If I lived my life and my job by absolute financial measurements I would be recommending all sorts of bad ideas to my bosses. HP, while they may have gone up and had been relatively cheap, they are now not relatively cheap. The P/E ratios (trailing) are based off of quarterly profits, which include the latest report.

2. Even if HP does have one good quarter or even ends the year up, it's just another sign of their inconsistant policies and profits. The company is like a rollercoaster in relative measurements. They still utilize equity and assets like crap.

3. Market share counts for a lot in every business. However, if you cannot sustain it or only can sustain it through price cuts that all-in, cost more, then it isn't effective.

4. Analysts, according to bloomberg, are still pegging Dell at higher growth than HP (7.9 compared to 5.1). That is market opinion.

Considering that HP's Beta is much higher also, which figures since they gyrate more than a 5 year old on a bag of pixie sticks, they should be returning a heck of a lot more to equity, but they aren't.

Also, considering that Dell's cash position is relatively much better than HPQ.

They aren't doing a whole lot better. You are taking a quarter and making a decade out of it.