As expected, in an attempt to boost its presence in China and acquire additional engineers, ATI Technologies on Monday said it had acquired Macrosynergy, an alliance company of XGI Technology in Shanghai, as well as employees of XGI in the U.S. The move further consolidates the development of graphics processing units (GPUs) at the hands of two major players – ATI Technologies and Nvidia Corp.

“This transaction brings ATI two important elements – presence in a country that is emerging as the next big technology market, and a team of engineers that are highly skilled in our key product areas. The XGI and Macrosynergy people bring additional breadth of knowledge and experience to an ATI team that is leading the graphics processor market,” said Dave Orton, president and chief executive of ATI Technologies.

The acquisition will see approximately 100 Shanghai, China-based employees join ATI. An additional cadre of XGI employees in Santa Clara, California will relocate to ATI’s Santa Clara location. Terms of the deal were not officially disclosed: Chinese media reports that ATI paid XGI about $3.5 - $4 million, whereas UK-based Hexus.net web-site claims that the sum may be as high as $8 - $12 million.

With the acquisition ATI immediately increases its presence in Shanghai, China, considered to be the epicenter of China’s burgeoning technology market. At the same time the company acquires the research and design expertise of an organization best known for its multimedia add-in boards for personal computers. XGI Technology meanwhile plans a major refocus of the company and by selling parts of its business that have not brought it a lot of success to it will get additional funds necessary for reorganization. While the company used to have ambitious plans in the past, it could not compete against rivals ATI Technologies and Nvidia Corp. because of the increasing complexity of the market.

“The GPU business is now at the same level of complexity and consequential cost as the CPU, if not more so. GPU suppliers have the same nanometer race as the CPU companies,” said Jon Peddie, principal analyst at Jon Peddie Research. “With their multi-processor capability they have the same burden of complier development, and they have the same if not more expense in design tools. Then there is the issue of finding not one, not two, but a minimum of three teams, plus leading architects to design the chips. Three teams are needed because the GPU suppliers are on an annual new product cycle (more aggressive than the CPU suppliers) plus mid year spins, and it takes between 24 to 36 months to design a new GPU, so you have to have staggered teams working on the next three parts.”

For graphics and multimedia chip designers it is tactically important to have presence in China. Currently, demand for computer hardware in China is setting a pace to achieve a 5% compound annual growth rate over the next five year period with spending on IT hardware hitting $20.3 billion in 2006, surpassing $23 billion in 2009 according to Gartner Dataquest. With the country expected to urbanize a billion people by 2010, strong markets for handhelds and digital televisions are also projected through the next decade.

“From a worldwide perspective, China will continue to be the dominant manufacturing base as well as a major market for both computers and mobile handsets,” said Oliver Xu, principal Shanghai-based analyst with Gartner’s semiconductor group. “Therefore the acquisition is important for ATI's further success in China and will enhance the company's performance in the global market”.