AMD to Acquire ZT Systems for $4.9 Billion

AMD announced on Monday its intention to acquire ZT Systems for $4.9 billion, reports Reuters. This move aims to enhance AMD's portfolio of artificial intelligence chips and hardware to better compete with Nvidia. The acquisition will be financed with 75% cash and the rest in stock. As of the second quarter, AMD had $5.34 billion in cash and short-term investments, positioning it well for this deal.

The increasing computing demands for AI require tech companies to connect thousands of chips to meet data processing needs. This necessitates a strong focus on server system design. Therefore, AMD's acquisition of ZT Systems is strategic. AMD CEO Lisa Su highlighted AI systems as the company's top strategic priority in a recent interview with Reuters.

Incorporating ZT Systems engineers will enable AMD to test and deploy its latest AI graphics processing units (GPUs) more swiftly. Cloud computing giants like Microsoft require rapid scalability for their systems. Su noted that the main benefit of ZT Systems to AMD is increased GPU sales.

AMD's stock rose over 2% following the acquisition announcement, while Nvidia shares increased by 1.4%. Creative Strategies CEO Ben Bajarin commented that the acquisition strengthens AMD's engagement with its data center customers, which he views as beneficial for AMD's long-term revenue goals.

AMD intends to divest its server manufacturing unit once the acquisition finalizes. Su confirmed there are no plans to compete with firms like Super Micro Computer. Discussions with potential buyers have not yet begun.

After the acquisition, ZT Systems CEO Frank Zhang will transition to AMD, reporting to Forrest Norrod, AMD's data center chief. The privately held ZT Systems employs about 2,500 people, with AMD planning to retain roughly 1,000 staff members, leading to approximately $150 million in annual operating expenses. ZT Systems currently generates about $10 billion in revenue, primarily through its manufacturing operations.

The agreement is expected to be finalized in the first half of 2025, with an additional 12 to 18 months required for the sale of the manufacturing unit. AMD anticipates that the deal will positively impact its adjusted financial performance by the end of 2025.

According to AMD CFO Jean Hu, while minor dilution may occur in the first year after the deal, increased GPU sales will offset these effects, creating a break-even scenario. In 2026, officials expect the acquisition to drive accelerated revenue growth.

Kinngai Chan, a managing director at Summit Insights, mentioned that the elimination of the manufacturing unit will not hinder AMD in the long term. He noted that having more engineers would be advantageous for expanding AMD's business targeting cloud customers.

Nvidia CEO Jensen Huang remarked at a recent developer conference that their company now offers complete data centers and essential components for building them. This year, analysts predict Nvidia will earn $105.9 billion from its data center sector, which encompasses chips and other AI hardware.

In a previous statement, Su indicated that AMD expects to earn approximately $4.5 billion from AI chip revenues this year alone. Key customers include major players like Microsoft and Meta Platforms.

Earlier, SSP reported that Google expands AI summaries in search to six new countries.