New of the deal closing between AMD and Xilinx broke this week, and AMD will acquire Xilinx for an all-stock $35 deal. I’ve written quite a bit through the years about how the semiconductor would continue to consolidate, and Xilinx was a natural target, although I did not think AMD would be the buyer.
I found this tweet interesting from David Scor
It gets even more interesting when you look at the revenue multiples these deals closed for. Nvidia buys Arm for 20X revenue, AMD buys Xilinx for 11X revenue, Marvell buys Inphi for 13X revenue. In all these cases, the acquirer makes more per quarter than the total yearly revenue of the company they purchased. In all these deals, the acquirer is hoping to expand their market and leverage their technology to grow their piece of the pie in markets they currently compete in and those they want to compete in.
For AMD, Xilinx allows them to expand into automotive markets, acquire IP for FPGA’s, and possibly some elements of 5G. What stood out to me in CEO Lisa Su’s comments on the acquisition was how much they liked Xilinx because of their commitment to chiplets in their architecture. Chiplets are something AMD is heavily invested in from an architecture standpoint. In the broad context, Xilinx is extremely complementary to AMD and their philosophy on semiconductor architecture design.
Lisa Su also said, “the era of monolithic integration is over,” which was a direct shot at Intel given that it has been their mantra for many years. I actually believe Intel is moving closer to the embracing of chiplets, even though they are doing it in their own integrated way.
I have had several discussions with financial analysts about this acquisition, and most are not entirely sure how this deal helps AMD compete more broadly. Especially when AMD roughly makes a quarter how much Xilinx makes annually. But my basic point on why integration is inevitable in the industry is because supplies prefer to buy technology from as few sources as possible, which means the more they can buy from a preferred vendor, the better. This acquisition will let AMD get more share of wallet from customers but also keep those customers more loyal and committed to AMD technology.
This acquisition alone won’t immediately change AMD’s market share, and this is a long gameplay that we will see fruits from in 3-5 years. But, it has to be said, two or three years ago, AMD could not have made an acquisition like this. The fact they have executed and competed so well against Intel has gained them favor in the stock market and thus presented them with this opportunity. Being a public company can often be a curse, but in this case, it is a tremendous blessing for AMD.
Apple’s Bullish on Q4
Don’t call it a supercycle! That’s my favorite theme from many investor notes I’ve read. Everyone points to a number of fundamentals from 5G, expanded iPhone lineup, and elongated refresh rates globally as reasons Apple is well-positioned for a very good Q4. Yet no one wants to call it a supercycle, which is something I agree with. But the tone of these notes and Apple’s commentary on earnings was so positive on the iPhone cycle, yet no one wants to mention the supercycle phrase. It’s almost as if they feel if they do say it, it will jinx the quarter.
During the earnings call, Tim Cook kept emphasizing how bullish they are on iPhone going into Q4. Despite iPhone revenue being down in Q3, and markets like China slumping heavily, the new product launch is strong and new products always impact Q3 as a slump in sales. The reality is demand appears to be extremely heavy in all of Apple’s major markets. Many analysts are estimating Apple’s Q4 iPhone shipments to be well north of 70m with a consensus range in the 73-74m range.
The iPhone feeds the ecosystem, which is why a growing and loyal base is critical to so many adjacent products and services from Apple. While many in the media have been quick to point out how Apple’s reliance on iPhone revenue is lessening, it doesn’t change the reality that the iPhone sits in the center of Apple’s ecosystem and everything else is a branch from that tree.
While a strong Q4 is anticipated, Apple provided no guidance but did mention they expect growth across the board. On top of that commentary, they mentioned they are currently supply constrained across a range of product categories. Supply chain reports I’ve read mention Apple ramping manufacturing to meet demand and barring any more disruptions from COVID 19, I’m not sure this will be an issue impacting sales in Q4.
Lastly, one bit of commentary from earnings stuck out to me. A question came in from an analyst about why not offering a hardware bundle like they offer subscription bundles. Tim Cook did not allude to their interest in a hardware bundle but he did say they know a good portion of their customers likes to pay for products on a monthly play. Both iPhone and iPad can be paid as installments on Apple Card, and I fully expect this to Macs and likely Arm-based Macs to start. This single move to monthly payments for Macs could very well tip the market more in Apple’s favor than just lowering the price of a new Mac. How Apple can leverage Apple Card, or some other medium so their hardware can be paid in monthly installments is a luxury they have most of their competition does not. I expect them to leverage it more and more going forward.
Brief Update: As I read investor notes that hit my inbox this morning it does appear the supercycle language is now back (facepalm emoji). The notable difference is this cycle is being measured on a fiscal year basis, not as a single quarter, which I think is more reasonable. I have no doubt iPhone sales will grow in Apple’s fiscal 2021 and I think growth will continue into 2022.