AMD Better Positioned To Compete With Nvidia After ZT Systems Sale, Citi Says

Advanced Micro Devices’ (AMD) $3 billion sale of ZT Systems’ data center infrastructure manufacturing business to Sanmina (SANM) could help narrow the competitive gap with Nvidia (NVDA) in the rapidly growing data center market, according to a research note from Citi on Tuesday.

Last August, AMD agreed to acquire ZT Systems for $4.6 billion, with plans to retain engineering talent but divest the lower-margin manufacturing component. Citi had initially expected the manufacturing arm to fetch closer to $5 billion.

The $3 billion transaction, announced on Monday, includes $2.55 billion in cash and stock and up to $450 million in potential earnouts over the next three years.

Despite the lower-than-expected price tag, Citi maintained a ‘Neutral’ rating on AMD stock but said the transaction could still improve AMD’s positioning in high-performance computing.

Citi noted that the move could help AMD reduce time-to-market for its data center chips and build more complete system solutions, an area where Nvidia already holds an edge with its tightly integrated GPU and system offerings.

AMD’s stock has fallen over 6% this year and more than 30% in the last 12 months. Meanwhile, Nvidia’s stock is flat this year and has gained more than 44% over the past 12 months. 

By offloading the hardware manufacturing to Sanmina, AMD is expected to focus more tightly on chip design and leverage Sanmina’s large-scale system integration capabilities. 

That structure could allow AMD to accelerate deployment timelines and enhance its appeal to hyperscale cloud customers such as Amazon (AMZN), Microsoft (MSFT), and Google (GOOG) (GOOGL).

“By combining the deep experience of our AI systems design team with our new preferred NPI partnership with Sanmina, we expect to strengthen our U.S.-based manufacturing capabilities and accelerate quality and time-to-market for our cloud customers,” said Forrest Norrod, executive vice president of AMD’s Data Center Solutions unit, on Monday.

AMD’s shares edged 0.08% lower in pre-market trade on Tuesday after falling more than 2% during the previous session. Meanwhile, Sanmina’s stock edged 0.01% lower in early morning trade after falling 3.7% on Monday. 

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Read also: AMD Offloads ZT Systems’ Data Center Infra Manufacturing Business To Sanmina For $3B, Retains AI Design Team