A year after Advanced Micro Devices’ acquisition of ATI, the Canadian graphics chipmaker, the merits of the takeover are still unclear to AMD shareholders.

The company has suffered four consecutive quarters of losses, its shares are down 39 per cent on their closing price on October 25 2006, the day the ATI acquisition was finalised. Gross margins are down 10 percentage points, key personnel have left the company and AMD has seen Intel move ahead of it in technological advances.

At a price of $5.4bn, the acquisition was one of the biggest ever takeovers in the semiconductor industry. It burdened AMD with debt and restructuring charges and represented its biggest gamble.

In a conversation with us this week, Dirk Meyer, AMD president, said he never saw it that way.

"Gambling implies we didn’t have another choice. But we really believed that the only good choice was to expand our product portfolio.

"We are an x86 CPU [microprocessor] company and, while the PC industry has been driven for years by it being the premium component in the box, looking forward, that’s wrong for our customers and for what users care about."

AMD needed a more complete platform for the consumer market focused around video, media and graphics performance not CPU performance, he said. "One year on, we feel this even more so."

Mr Meyer said the timing of the acquisition was unfortunate – the microprocessor and graphics businesses took a downturn for reasons that existed independent of the acquisition. AMD had problems in its supply chain with its CPUs and became embroiled in a price war with Intel, while ATI’s next-generation chips were late and it was beaten to the punch by its rival Nvidia.

He said the departure in the summer of Dave Orton, ATI’s chief executive, was pretty much as planned at the time of the acquisition.

New customers are being won already, he argued. Toshiba had begun using its chips for the first time in its notebooks because AMD could offer a better integrated platform with ATI’s graphics chips.

"Fusion" – the full realisation of the benefits of the merger – is expected in 2009, said Mr Meyer. This new class of processor that integrates the CPU and the graphics processing unit (GPU) will combine AMD’s CPU skills with the graphics smarts of ATI’s engineers. By that time, he hopes PCs will be sold not on the strength of their dual core, quad core or octo-core CPU capabilities, but on the benefits they offer users in performing different tasks.

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