A Taiwan-based newspaper reported about graphics chip designer ATI Technologies’ plans to acquire a Taiwanese graphics startup XGI Technology. However, a number of analysts believe that the merge between the two companies seems unlikely.

Economic Daily News, a Taiwanese newspaper, said in its issue that Markham, Ontario-based ATI Technologies was planning to acquire XGI Technology. According to the report, ATI worked with XGI to gain a contract to supply graphics chips for Microsoft Corporation’s Xbox 2 console.

XGI Technology is a spin-off from Silicon Integrated Systems that acquired graphics division of Trident Microsystems last year and delivered a rather unsuccessful XGI Volari Duo V8 Ultra graphics card to the market. Some industry sources believe there are a number of world-class specialists in XGI from overseas, but what is pretty clear, the number of such engineers is not enough to form a large design team for PC graphics chips.

“It does not make sense at all to me. If ATI is going to make acquisitions, it will be to build up their consumer business,” a UBS Warburg analyst Martin Cecchetto told Dow Jones Newswires.

Other analysts noted the same thing, claiming that ATI’s acquisition roadmap is aimed to gain a foothold in the consumer markets, but not to pour fresh blood into PC graphics teams.

Comments from both XGI and ATI Technologies were unavailable, as both firms do not comment on rumours.

While there is hardly a visible point for ATI to acquire XGI Technology for about $75 million, it may make sense for Silicon Integrated Systems and its partner to sell XGI Technology, as SiS’ graphics business has been unsuccessful for a number of consecutive years.

Last year SiS’ John Hsuan said that although Hsinchu, Taiwan-based chipset designer would give preference to graphics cores from its subsidiary XGI, in case there is market demands, SiS may also secure license on incorporating graphics cores from ATI into its chipsets. At that time an ATI Technologies’ representatives said that the Markham, Ontario-based graphics and multimedia company would be happy to have SiS among its clients.