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Analyst: AMD Considering Acquisition of Graphics Chip Maker ATI

Shares of ATI Technologies Inc. jumped more than 9.5 percent Wednesday after a Wall Street analyst said the graphics chip maker may be acquired by Advanced Micro Devices Inc., the PC microprocessor maker that's been taking market share from Intel Corp.

RBC Capital Markets analyst Apjit Walia said "recent checks in the PC-food chain suggest" the pairing "may be likely." It would be consistent with recent announcements from AMD to boost its ability to produce significantly more chips over the next few years, he wrote in a research report.

ATI shares gained $1.48 to $16.63 on the Nasdaq Stock Market in early afternoon trading. AMD's stock was up 38 cents to $30.86 on the New York Stock Exchange.

Spokesmen for the companies declined to comment.

On Monday, AMD said it planned to invest $2.5 billion over the next several years to refurbish old plants and build new factory space at its site in Dresden, Germany.

Walia said speculation has raged for years that ATI or other graphics chip companies would be bought by AMD or Intel. He went on to say the move would be a mistake for Intel, which besides being the world's biggest chip maker is also the world's biggest supplier of graphics chips.

"This tie-up might make sense for AMD at this juncture but we don't think Intel should pursue tying up with graphics companies and should instead look at the communications space," Walia wrote. "We believe Intel is still not 'reading the writing on the wall' and continues to over-focus on PCs."

An AMD acquisition of ATI, based in Markham, Canada, would be a positive event for the graphics industry, Walia said.

Separately, Walia said Intel's revenue in the current quarter is on pace to fall almost 10 percent from the same period last year, which would translate to about $8.3 billion -- the midpoint of Intel's forecast of $8 billion to $8.6 billion.

The quarter ending in September is "tracking below seasonality," Walia wrote.

Santa Clara-based Intel is making "drastic" price cuts on chips including its Celeron, Pentium 4 and Pentium D products, which may give way to an "ugly" price war with Sunnyvale-based AMD.

Intel shares rose 27 cents to $18.08 on the Nasdaq Stock Market.