On Monday, Advanced Micro Devices (AMD) said it will pay $5.4 billion to acquire Canadian graphics chip maker ATI Technologies Inc., putting pressure on rival Nvidia Corp., the other dominant maker of graphics chips.
ATI stands to gain a number of competitive strengths, including the engineering prowess of AMD's processor engineers, and probable access to AMD's fabrication plants. This would be on top of what many in the industry feel is already a world class design team.
Nvidia may additionally be threatened by the partnership as its chips are built around both Intel and AMD technologies. It currently commands nearly 40 percent of the market share in the AMD based platforms, or $100 to 125 million a quarter.
In light of these new challenges facing Nvidia, some analyst believe the merger between AMD and ATI may work in its favor, especially in the long run.
I continue to think that Nvidia will support AMD with chipsets but will play more of a role in the high end systems, an area that AMD has been recently making inroads, Doug Freedman of American Technical Research said in his Monday note.
On a short term basis, perception wise, Nvidia will be negatively impacted Satya Chillara, his colleague contends. However, AMD business will continue as OEMs want at least two sources, and secondly, [Nvidia] will likely get closer to Intel-based platforms.
We remain bullish on the outcome for NVDA if the deal were to happen,
Shares of Nvidia rose 7.43 percent to hit $19.09 in the NASDAQ stock exchange.