There's a Growing Chance of an AMD (AMD) Takeover - Analyst

November 8, 2012 12:04 PM EST
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Analysts at Goldman Sachs see a growing probability of M&A for AMD's (NYSE: AMD) processor business. However, even under such a scenario, it won't mean much upside for investors.

"We believe the plethora of companies that are now focused on vertical integration in the consumer electronics and/or data center markets, combined with the recent significant sell-off in AMD's stock, creates the possibility of M&A for AMD's processor business," analyst James Covello said.

Covello thinks companies could attempt to replicate the vertical integration of hardware, semiconductors, and software seen at Samsung and Apple. Deal activity may also be giving clues, he said. "There have been recent examples of M&A of processor assets, including Apple's purchases of Intrinsity and PA Semi, and the current proposed acquisition of processor IP company MIPS," the analyst notes. "While we believe the probability of any single company acquiring AMD's processor business is low and we recognize that an acquirer would likely need to renegotiate the cross license with Intel, we see, in combination, a medium probability (a range of 15%-30%) of M&A for AMD's processor business.

If AMD's processor business is acquired it would suggest an enterprise value for processors of about $1.3 billion, the firm calculates -- $900 million for the server part of the business and $400 million for the PC client part. If AMD's processor business is not acquired, enterprise value goes down to about $850 million, he said. Given these values, the firm cut their price target from $2.75 to $2.25, which is a blended total. They rates the share a Neutral.

For an analyst ratings summary and ratings history on AMD click here. For more ratings news on AMD click here.

Shares of AMD closed at $2.01 yesterday.

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