How Will AMD Gain from a Possible Licensing Deal with Intel?
Could Intel and AMD's Rivalry Turn into a Partnership?
Impact of a possible licensing deal
So far, we’ve seen that the rumor of a possible licensing deal between Advanced Micro Devices (AMD) and Intel (INTC) would have a negative impact on NVIDIA (NVDA), but it would benefit Intel.
The biggest winner in such a deal would be AMD, whose stocks reacted positively to the rumor of this deal. However, it also runs the risk of giving away its strength to Intel. Let’s look at both the positives and the negatives for AMD.
AMD gets much-needed cash
As of December 26, 2015, AMD had cash reserves of $785 million and long-term debt of $2 billion. This indicates that the company is in dire need of cash to meet the interest expense of its debt. Moreover, it needs cash to invest in new technology to remain competitive. To add to its worries, the company has been seeing losses over the past four years.
Any deal that can infuse cash is considered a win for AMD. Its joint venture with Nantong Fujitsu Microelectronics Company will infuse $371 million into its cash reserves in 1H16.
In its licensing deal with NVIDIA, Intel paid $1.5 billion over a period of five years. If Intel intends to sign a similar deal with AMD, a cash infusion of up to $1.5 billion could enable the latter to build competitive technology and regain market share lost to NVIDIA.
AMD may lose its strength to rival Intel
However, this cash would come at the cost of AMD’s APU (accelerated processing unit) and GPU (graphic processing unit) technology, which differentiates it from Intel. Both companies compete in the PC processor and data center market.
AMD’s advanced graphics technology inside its x86 processor has differentiated it from Intel. AMD’s next-generation Zen x86 architecture, which would be produced on Korea-based (EWY) Samsung’s (SSNLF) and Global Foundries’ 14nm (nanometer) process node, would compete with Intel’s 14nm core line.
Licensing its graphics technology to Intel could hamper AMD’s competitiveness in the x86 processor space. It could also create competition for itself in the gaming market, as Intel intends to compete with AMD’s customers Xbox and Playstation.
However, AMD can capitalize on this by altering its business structure. We’ll shed some more light on this in the next part of the series.
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