Chip designer Adanced Micro Devices, Inc’s (AMD) $35 billion acquisition of field programmable gate array (FPGA) provider Xilinx, Inc has secured conditional approval from the Chinese State Administration for Market Regulation (SAMR) clearing the last remaining global hurdle towards approval. AMD had announced the deal back in 2020, and had expected it to close by the end of 2021. However, the Chinese approval, which was the final step towards consumption, was delayed reportedly due to the SAMR investigating proposals to counter potential anticompetitive outcomes from the approval. Today’s approval, announced by the SAMR in the form of a press release, conditions the deal going forward on the merged entity not bundling its products in order to force customer purchases.
AMD, Xilinx Forbidden From Product Bundling As Part Of Chinese Regulatory Approval
The Chinese approval, which had been rumored before today’s announcement, was initially unexpected by Wall Street analysts. After AMD and Xilinx announced the merger in October 2021, Wall Street analysts initially opined that Xilinx management would reject the deal due to Xilinx’s lead in the FPGA sector, despite the fact that AMD had offered a 20% premium over the company’s share price at the time of announcement. The analysts also remained skeptical about positive synergies to AMD from the deal, believing that the company had little to gain technologically through the affair. However, this tone changed soon afterward when in a slew of price target upgrades, analysts started to share their optimism. JPMorgan remained the most optimistic, as it increased AMD’s price target by a whopping 39%, to reflect the company’s then upcoming earnings release for the third quarter and the additional earnings benefit that would result from bringing Xilinx under its wing. Now that the merger is approved, AMD will become the world’s fourth largest integrated circuit designer according to 2020 rankings, in a list that is led by NVIDIA Corporation, Qualcomm Incorporated and Broadcomm Inc. The Chinese approval is based on several conditions to which the merged entity will have to adhere. One of these is ensuring that there is no product bundling, through which AMD could either force Xilinx’s FPGA customers to buy AMD products, or Xilinx could engage in the opposite, requiring AMD’s customers to buy only Xilinx FPGAs. Additionally, the SAMR also requires that products from both companies, or one now that the deal has been approved, will be compatible with the ARM instruction set architecture. In the aftermath of American sanctions against China that have limited the country’s ability to procure advanced semiconductor based on the x86 ISA, the Asian country has now come to rely on comparable products build through ARM designs. Finally, another condition laid out by the SAMR requires AMD’s graphics processing units (GPUs) and Xilinx’s FPGAs to be compatible with products in the Chinese market. The conditions appear to indicate potential unease in Beijing about two important companies combining, in an era that has seen its access to advanced chips and chipmaking technologies limited due to fears of it being used for military purposes. AMD is set to report its earnings for the fourth quarter of last year next month, and Wall Street is bullish on a company that has delivered strong revenue growth recently due to a combination of chip design prowess and advanced manufacturing technologies. The latter comes courtesy of the Taiwan Semiconductor Manufacturing Company (TSMC), which has become the world’s largest contract chip manufacturer in the process.
