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Does ATI Need to Be Acquired Just Now? No!

“ATI does not need the acquisition. Nonetheless, AMD is rumored to be strongly interested in ATI,” said Jon Peddie, the head of Jon Peddie Research.

And ATI truly does not seem need the acquisition in the short-term, as everything should play in favour of ATI, Nvidia and their desktop discrete businesses, revenues and margins up. Intel releases its Intel Core 2 chips on July 27 and it is highly likely that the launch will catalyze sales of desktop graphics boards. Additionally, more graphics cards are sold in the second half compared to the first half, which is another positive sign for ATI and Nvidia. Nevertheless, Intel is planning to release its DirectX 10-supporting integrated graphics core this Fall, which may drive the demand for desktop discrete components down.

“Nearly all the variations in the market share of discrete graphics have to do with seasonality (consumers buy more discrete, and that increases in the 2H of the year), inventory adjustments or the age of the currently available integrated chip sets (as they grow older, the graphics is less appealing and discrete connections go up) These two – seasonality and chipset age – are far and away the dominant factors in discrete graphics shipments,” said Dean McCarron, principal analyst at Mercury Research.

Additionally, ATI is working with many digital TV (DTV) makers and continues to improve its Xilleon series of products aimed at DTV devices. The Xilleon business continues to set records for the company.

“Our DTV business set record revenue and unit shipments in Q3, now six sequential quarters of record revenue. On the strength of our Xilleon 240 processors, we expanded our position in nine of the top 11 LCD OEMs. Two key areas for innovating in DTVs are displaying superior image quality, and system on the chip integration, both areas where ATI is excelling in the very fast growing market,” said Dave Orton, ATI’s chief executive officer, during the most recent conference call with financial analyst.

Moreover, ATI’s aggressive branding campaign, which started a couple of years ago in the PC market is now expanding on the consumer electronics, something, what even Intel would like to see with its Viiv!

“Our next generation Xilleon is ramping with designs hitting the shelves this fall. This new Xilleon will redefine image quality benchmarks and deliver features reserved in the past for separate, specialized chips. Image quality is such a critical criteria now for digital TVs that OEMs are now asking to use the ATI logo on upcoming designs as a competitive differentiator ,” Mr. Orton said during the call.

On the other hand, if AMD acquires ATI now, it will ensure that its revenues are high because of GPUs and DTV chips even when Intel is king of the hill and will also benefit, when it invents something, which causes standalone GPU sales to rise. One thing AMD will not have for sure is Intel chipset business (in Q1 2006 ATI shipped 4.3 million Intel chipsets and 3.9 million AMD64 chipsets), which was largely advertised by ATI as well as very close collaboration with the world’s leading chipmaker, also hyped by ATI.

“In [FY2006] Q4, the powerful combination of CrossFire, the 1900, and Intel’s Conroe will set new standards for gaming performance,” ATI’s chief executive told financial analysts.

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