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Why Samsung should buy AMD

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Why Samsung should buy AMD

OPINION Rumours suggest that Samsung is lining up a purchase of chip maker AMD. Computing Editor, Edward Chester, looks at the arguments for and against such a move

Why Samsung should buy AMD

Rumours are circulating that tech-giant Samsung is about to buy struggling CPU and GPU manufacturer AMD, to bolster its fight against the likes of Intel and Qualcomm for semi-conductor supremacy. But with AMD wracked with debt and struggling to compete with Intel and Nvidia, what’s in it for both parties? Let’s break it down.

Samsung gets AMD’s IP

The most obvious beneficiary here would be Samsung as it would get access to AMD’s CPU and GPU IP, allowing the company to incorporate these technologies into its own chips. That means we could see Samsung mobile chips with AMD Radeon graphics or, even weirder, Samsung-branded APUs/CPUs in Samsung laptops.

On an even more base level, Samsung could simply pocket the IP and be safe in the knowledge it can now use a whole load of technologies without paying any license fees or fearing litigation. It could literally shutter AMD as a chip producing entity and sit pretty on that IP. It’s unlikely it would do that as the deal would likely not be approved if that looked likely to happen, and AMD does still have some viable product lines that Samsung could continue to produce.

Samsung gets an x86 license

A specific benefit of gaining access to AMD’s IP is that Samsung would be buying one of only two companies that is licensed to produce x86 processors, along with VIA and of course the licenser Intel. This would open up a raft of possibilities for Samsung to produce a range of processors for desktops, laptops, tablets and even phones. With its existing expertise with mobile chip manufacturing it could seriously take the fight to Intel as that company tries desperately to make inroads in the mobile space.

Samsung gets the console chips

One of the biggest design-wins for AMD in the last few years has been getting its chips into all the main consoles. The PS4 and Xbox One both use AMD APUs while the Wii U also uses AMD-designed graphics. While AMD isn’t making a huge amount of money from these chips the idea is they provide long term revenue, given the long production life of these consoles.

It’s also more likely that any subsequent console will use AMD APUs as the transition for manufacturers and developers will be easier. That is, of course, dependent on their being future new consoles. Some say there won't be, but that's hard to predict right now.

AMD gets Samsung production

Potentially one of the greatest benefits of any potential deal will actually be for AMD, as it would get access to Samsung’s world-class chip manufacturing facilities. Currently AMD uses TSMC and Global Foundries to produce its chips, and both are behind Intel and Samsung when it comes to process technology.

While Intel has been able to produce 14nm finFET products for around 9 months and Samsung has also had about 6 months of production, TSMC is only just transitioning to 16nm and Global Foundries isn’t at full 14nm production yet either.

Not that it’s as easy as copying and pasting a design from one manufacturing process to another, but there’s potential for AMD to have a more rapid transition to the most competitive silicon production facilities. As a result its APUs, CPUs and GPUs could be faster and more energy efficient, making them far more competitive with Intel and Nvidia.

AMD gets investment

Currently AMD is in a fair amount of debt. While this has been hanging over the company’s head for years and not affected it too much, it would still be beneficial to get rid of that burden if only to change the overall mindset of the company.

Not only could a Samsung acquisition pay off that debt but there could also be significant investment that would help push the company’s products back into more competitive territory.

SEE ALSO: Why your next monitor should have AMD FreeSync

Why Samsung shouldn’t buy AMD

So those are the arguments in favour, but what about the opposite. Are there reasons for Samsung or AMD to back away from the deal, and what are the implications for consumers?

AMD could lose its x86 license

The most direct threat to any potential deal between the two companies could simply be that Intel pulls the x86 license from AMD/Samsung, leaving the company without the right to produce desktop/laptop CPUs.

The exact details of how this licensing agreement is structured is unclear,but it’s perfectly possible there are clauses that allow Intel to cancel the current deal. Moreover it could choose to not renew the license when it’s next up for renewal.

It’s unlikely Intel would do this, as it still makes money from selling the license, but if backed into a corner it’s a move it could make.

Samsung could shutter AMD

As mentioned earlier, there is a chance that Samsung is out to buy AMD simply to grab its IP and save itself a load of headaches in terms of existing license agreements and for if and when it decides to make new chip designs.

While it’s unlikely Samsung would be allowed to do anything immediately, it could well look to ramp down production of things like AMD’s Radeon graphics cards and generally move away from the traditional PC/enthusiast space.

Job losses could be significant

As well as impacting consumers the more obvious loss would be in jobs at key AMD sites. Again, it’s unlikely the deal would be allowed if this was the intention but you never know, a few years down the line.

SEE ALSO: Intel Core M - Everything you need to know

Conclusions

From Samsung’s point of view there’s little reason not to try and swallow up AMD. The combination of an x86 license and a host of other chip design IP could be immensely useful for a host of its other products. With AMD being valued so low at the moment the deal would also be something of a bargain, even with AMD’s existing debt.

The real question, then, is what’s in it for AMD? Clearly its shareholders would get a bit of cash, but from the perspective of its employers and the consumers that use its products, the picture is far less clear. Nvidia needs a strong competitor on the graphics card front to keep prices and innovation going in the right direction, and Samsung simply may not be interested in pursuing that market. Meanwhile AMD’s CPU/APU division could well find itself shrunk as Samsung moves away from trying to compete directly with Intel on the desktop/laptop front and instead concentrates on dominating the mobile market.

Of course, it could simply be that Samsung chooses to run AMD as a separate subsidiary for the foreseeable future, in the same way that Lenovo has done with Motorola, and the overall result for consumers would probably be beneficial in the short to medium term.

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March 26, 2015, 1:33 pm

The FTC wants AMD to be able to form mergers and joint-ventures free from lawsuits from Intel. The FTC also has ORDERED Intel to Negotiate in Good Faith with the next acquiring entity. The FTC also has retained full authority as to what exactly good faith is. In short any acquiring entity will get an x86 license under similar terms that AMD previously had in a reasonable amount of time.

Intel agreed to ALL of this as it was the condition to approve the settlement agreement with AMD.

This is the relevant text from the Federal Register:

48342-48342 Federal Register / Vol. 75, No. 153 / Tuesday, August 10, 2010 / Notices

"The existing change of control terms in licensing agreements potentially limit the ability of AMD, NVIDIA, and Via to take part in a merger or joint venture, or to raise capital. The provisions in the Proposed Consent Order are designed to allow AMD, NVIDIA, and Via to enter into a merger or joint venture with a third party, or to otherwise raise capital, without exposing itself to an immediate patent infringement suit by Intel. In the event that AMD, NVIDIA, or Via undergo a change of control, these provisions prohibit Intel from suing for patent infringement for 30 days. Furthermore, Intel must offer a one-year standstill agreement during which the acquiring party and Intel would not sue each other for patent infringement while both parties enter into good faith negotiations over a new license agreement. .....

The Commission takes seriously Intel’s commitment under these provisions in the Proposed Consent Order. The Commission has authority under the Order to evaluate and determine whether Intel in fact engages in good faith negotiations and the Commission will be able to enforce the Proposed Consent Order if Intel does not negotiate in good faith. In the event
the change of control terms are invoked, the Commission will carefully scrutinize Intel’s conduct and take action, if appropriate."

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March 26, 2015, 1:36 pm

There is a website that provides the link to the pdf of the relevant pages of the Register. But this website does not allow links to be posted in their comments. I guess they are afraid that once folks leave the site they will not return.

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March 26, 2015, 1:55 pm

I hardly think that Samsung would wind down Radeon graphics cards. Radeon and Firepro are the crown jewels of AMD IP.

There is just not enough money in putting Radeon on ARM mobile silicon. Samsung wants to get into the server business. They dropped their own ARM Microserver program and maybe AMD's looks pretty good?

Also Microsoft and Sony have too much a commitment in AMD APU's for consoles. The console silicon sales over time would likely pay for the acquisition.

Samsung could quite likely acquire AMD for 2-3x sales or somewhere in the vacinity of $6+ BILLION. Mubadala quite likely would have something to say about this as they own 19% and have a seat on the board. The Sheik undoubtably would like to see some ROI.

Apple paid $3BILLION for a pair of Urban Branded headphones.

And lastly the deal makes great sense as unused Samsung Capex could be utilized for inhouse designs. Samsung, GloFo, and AMD are already working together on 14nm and of course Mubadala owns GloFo. All the players are in bed.

And does Samsung really want MediaTek to gain an advantage?

I see Samsung at first coming in as a "White Knight" throwing cash in exchange for a private placement and broad licenses and perhaps later if the IP works out; acquiring AMD outright.

Matthew Bunton

March 26, 2015, 3:39 pm

Or it could be because they don't want the threads littered with spam links like most other sites.

andyvan

March 26, 2015, 5:28 pm

As Matthew says, any comment with a link in it is held in moderation due to the widespread spam we'd get otherwise. Regulars are whitelisted to avoid this problem.

Would normally just approve your other comment, but since you posted the comment with and without the link, here's the link for people that are interested: https://www.ftc.gov/sites/defa...

Alex Alexandrewitsch

March 27, 2015, 2:06 am

Sorry but you as an expert should know Samsung nor AMD get these consolechips, the chips are IP of Sony and M$ Now. you cant get these chips so easily

Ed

March 27, 2015, 10:10 am

Er, no they're not. AMD still directly produces and sells the chips to Sony and M$. If the agreement included clauses to do with shifting manufacturing there would still be licensing fees based on the use of core AMD technology.

Alex Alexandrewitsch

March 27, 2015, 8:01 pm

Yes but its property of sony a M$ amd cant sell it to any other costumer...

Ed

March 30, 2015, 10:44 am

You seem to be completely misinterpreting the point I'm making. Of course AMD doesn't own the designs to the point they could just sell them. However, if AMD is bought out by someone that company then inherits those contracts to carry on building those products.

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