Where there’s smoke ... Jon goes chasing the rumors

Posted: 06.19.06

Grandma used to tell me, Where’s there’s smoke there’s fire. Grandma was right about most things.

Who’s buying who or building what?

There's been a lot of speculation recently about the CPU and GPU companies.

Will Intel buy ATI?

Will Intel buy Nvidia?

Will AMD buy ATI?

Will Intel enter the GPU market?

Here's what I think, and some of it I know for sure.

Will Intel buy ATI?

Intel could buy ATI, but won’t. Intel and ATI have a great relationship, much better than the Intel Nvidia relationship. But Intel has its hands full now dumping products that don’t fit the core business, and picking up ATI would be expensive and distracting. The same is true for Nvidia.

sherlockWill Intel buy Nvidia?

This rumor pops up every so often. One main reason Intel might buy Nvidia is because it sees Nvidia as a potential rival and that would be a way to stop them. Nvidia said in 2002, “In 10 years, we should be bigger than Intel.” Statements like that get Intel’s attention (sometimes).

Will AMD buy ATI?

This rumor has been floating around for about a month, and came to white-hot brightness when an RBC Capital Markets analyst, Apjit Walia, wrote in a note to investors, “The synergies of this seem consistent with the recent announcements by AMD to significantly increase capacity over the next few years. We believe ATI is a rare buy in the semiconductor space right now, given the near-term tie-up dynamics.”

Then came Computex, in Taipei, the industry’s capital of rumors and lost secrets, and occupied by all the web hacks who take as long as five seconds sometimes to check and double-check a story (you know, that annoying second-source stuff—ugh, how it slows one down).

Since I didn’t go to Computex this year, I had the benefit of a cooler head and the distance of reason, and so I’m utterly convinced AMD will not buy ATI. Why?

The pros

• AMD needs all their money for fab 38,

• AMD has a closer relationship with Nvidia than ATI, and

• ATI is a Canadian company with loans and tax concessions and the Canadian government would never let it be acquired by a U.S. company.

Also, in speaking with Hector Ruiz and Dirk Meyer last week, they said their core biz model is to drive standards, the implication being that neither ATI or Nvidia represents such a standard.

But ….

The cons

Where’s there’s smoke there’s fire—right, and there’s a heap of smoke around this one.

The Inquirer did a journalistic two-step, first reporting “I am now utterly convinced that AMD will buy or merge with ATI,” and then the next day reporting, “We cannot name names but a few important people from both camps have confirmed that AMD won’t buy ATI.” And then there was a story that at a dinner discussion Intel people said it made sense for AMD to buy ATI.

And HardOCP, never shy about taking a position, claimed that in downtown Taipei it was explained to Kyle that “Intel was making the rounds with their customers explaining exactly how the AMD–ATI merger/acquisition was going to impact their business. Closure of the deal is expected to pass in two weeks.”

There are also rumors that get back to an Nvidia AIB salesman, an ATI AIB salesman, and an ATI sales guy who is alleged to have said there was a formal offer and they [ATI and AMD] are just fighting over the price.

Why would AMD acquire ATI?

• AMD could use a chipset to offer one-stop shopping to the ODMs and OEMs as Intel does now.

• AMD could put a GPU in their new Torrenza socket.

• ATI could get AMD further into the laptop space (and maybe an Efficeon CPU).

The dark side

But what if all of these rumors were just stock manipulations? You remember a few weeks ago the rumor of Intel buying ATI made the rounds. What if someone or some group was speculating and shorting ATI at the current price and cashing in when the stock took its little pop due to the rumor? I tried this idea on some of our financial clients and they said it happens all the time.

Will Intel enter the GPU market?

Will Intel enter the GPU market? In a sense they are already in it with their powerful integrated graphics processors (IGPs). Intel has built GPUs in the past (e.g., i740) and they have been -disasters.

The rumor mill is feeding this one too. “Several very high-ranking graphics players confirmed that Intel plans to get back into the discrete graphic business,” said the ever reliable Inquirer.

There could be some wood behind this one, however. The problem has been with Intel’s business model. However, Intel doesn’t like the shift in the PC semiconductor budget by the OEMs, which has moved money to the GPU at the expense of the CPU. And Intel is concerned with the uses of GP-GPU. So, for all those reasons Intel is, as it does regularly, looking at the GPU market to see if there is an entry point that makes sense for them.

There are a lot of undercurrents here, and some tidal pressures that will result in changes in the market within the next nine to 12 months. Just remember what Grandma said.