AMD sells handheld chip unit to Qualcomm

Qualcomm has acquired Advanced Micro Devices' handheld chip division for about US$65 million, looking to bring greater multimedia capabilities to handsets based on its chips.

The deal, which closed Monday and has already been approved by regulators, will help AMD focus on its core businesses of making x86 CPUs and high-end multimedia chips, according to a joint statement from the companies.

Qualcomm bought graphics and technology assets, intellectual property and other resources from AMD, and will offer to hire design and development teams from the company, they said. The teams are working on 2-D and 3-D graphics, display, audio and video products. Qualcomm said it would integrate AMD multimedia technology into its system-on-chip products.

AMD has been struggling against its much larger rival, Intel, and last October spun off its foundry business as a separate company. On Monday, the company said it would eliminate 1,100 more employees and cut salaries to remain competitive.

Qualcomm makes chips and licenses technology for a wide range of mobile handsets. It has also been pushing mobile multimedia through its MediaFLO unit, which builds broadcasting systems for delivering digital TV to cell phones.

The value of the acquisition could change because of adjustments for employee-related expenses. Qualcomm expects the deal to dilute its pro forma earnings per share by $0.02 in its 2009 fiscal year, which will end in September, and begin to add to its earnings in the second half of its 2010 fiscal year.

AMD itself acquired the mobile graphics technology through its purchase of ATI Technologies in 2006. Qualcomm is already licensing the technology for current products, including its Arm-based Snapdragon platform for smartphones and netbooks.

The current licensing arrangement makes Monday's deal a natural step for Qualcomm, said analyst Nathan Brookwood of Insight64 in Saratoga, California. With the engineering team on board, Qualcomm knows it can continue to use and develop the graphics capabilities. Plus, the company is likely to continue doing what it naturally does and license the technology to others, Brookwood said. And buying the assets ensured no competitor got them. Qualcomm officials were not immediately available for comment.

"To replicate that kind of R&D or to switch to something else would be hard," Brookwood said. "Qualcomm both has positive gains here and avoids any kind of competitive liabilities." The acquisition will also help Qualcomm compete against the Tegra mobile platform from Nvidia, which combines that company's graphics technology with an Arm core, he said.

"AMD is in trouble," said analyst Jack Gold of J. Gold Associates. "They cannot compete with Intel across the board, and they have to go where they can make some money."

The graphics capabilities Qualcomm has acquired will have a place in both smartphones and MIDs (mobile Internet devices), an emerging product class that will overlap with high-end smartphones but will often be slightly larger, Gold said. Smartphones and MIDs should have multimedia capabilities because they basically have the horsepower of the PCs of four or five years ago, he said.

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