Dividends and AMD to buy rival chip maker Xilinx in $35 billion deal

In all industries there are the companies producing at the top end of the market with the highest margins and those producing at the low end of the market and thus needing volume to meet the lower margins. At the low end, companies would love to do what the high end companies are doing and they try, whether they succeed is a different question but they try.

In the chip making world, Intel for years held the top end of the market and AMD or Advanced Micro Devices was at the lower end. However technology and uses of technology in the 5G world are changing which means there is an opportunity to shift the marketplace.

In an article by Don Clark of the New York Times News Service AMD agreed to buy Xilinx for $35 in stock. The deal will change AMD to be more competitive with Nvidia and compete with Intel as the market for data centers, 5G and automobile electronics change.

Sometimes consolidations are about duplicate product lines and cost-cutting, but AMD believes it can expand the business and boost profits. Lisa Su, AMD ‘s chief executive said Xilinx will help establish AMD as the industry’s high performance computing leader and partner of choice for the largest and most important technology companies in the world.

A number of years ago, the statement was highly optimistic but Intel has suffered technological and financial stumbles and AMD has slowly grabbed a lead in some key measures of computing performance. Intel reported a 29% decline in quarterly profits.

Xilinx founded in 1984 is the biggest maker of a class of chips that can be reconfigured for a variety of specialized tasks after they leave the factory. Such field programmable gate arrays have long been popular in telecommunications applications, and 5G is coming. The gross margins at Xilinx are higher than AMD and company continues to generate considerable cash.

It is noted Huawei is one of Xilinx’s major customers. Huawei is being banned by various countries because of the idea that China receives data and could do something with it. However there are many countries around the world that welcome China and Huawei because they would not have the 5G abilities.

One of the reasons Intel is losing money is they bought Altera (Xilinx biggest competitor) for $16.7 billion in 2015 expecting to produce Altera chips in Intel factories. That process has failed to generate big returns, Intel continues to work on it.

AMD relies heavily on external manufacturing partners, as does Xilinx – particularly Taiwan Semiconductor Manufacturing Co. AMD and Axilix have pushed new technologies for creating new products from packaging multiple chips together.

Linking to dividend paying stocks, all companies look for the best method to generate high gross margins and if the companies are receiving them, investors love the companies. When you examine your investments what margins are the companies receiving and have they been consistent. For example in credit cards, the gross margin is 40% and consistent. It is not hard to earn profits and pay dividends when margins are very healthy.

There are more questions than answers, till the next time – to raising questions.

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