AMD announced in an SEC 8-k filing today that it agreed to acquire US-based ZT Systems for $4.9 billion. The deal, which consists of cash and stock, also contains a Contingency Consideration of up to $400 million, provided certain conditions are met.
As part of this agreement, the ZT Group manufacturing business is to be sold (Section 7.15). By doing so, AMD will look to avoid any potential issues with the acquisition. The documents filed with the SEC do not put a value on the deal but the proceeds will go some way to offsetting the $4.9 billion AMD is paying.
Dr. Lisa Su, AMD Chair and CEO, said, “Our acquisition of ZT Systems is the next major step in our long-term AI strategy to deliver leadership training and inferencing solutions that can be rapidly deployed at scale across cloud and enterprise customers.
“ZT adds world-class systems design and rack-scale solutions expertise that will significantly strengthen our data center AI systems and customer enablement capabilities. This acquisition also builds on the investments we have made to accelerate our AI hardware and software roadmaps.
“Combining our high-performance Instinct AI accelerator, EPYC CPU, and networking product portfolios with ZT Systems’ industry-leading data center systems expertise will enable AMD to deliver end-to-end data center AI infrastructure at scale with our ecosystem of OEM and ODM partners.”
Why is AMD doing this?
AMD is looking to reposition itself in the AI server space. Despite spending over $1 billion in the last year to boost its AI business, it is falling behind its competitors. Buying ZT Systems changes that. It gives AMD a well-respected hardware business in the key hyperscaler space.
ZT Systems will be absorbed into the AMD Data Center Solutions Business Group. Neither company has given any indication of what will happen to the staff. Will they all move over or will AMD look to make redundancies? As AMD is chasing competitors and looking to become a significant player in the data centre AI market, it will likely keep the technical and sales teams on, at least in the short term.
This deal should also provide a platform into which the AMD Instinct MI300A and MI300X AI accelerators can be deployed. The company already claims that these chips outperform Nvidia’s H100 GPUs in several workloads. They also come with more memory than the Nvidia chips. With both companies fighting over the exploding LLM market, performance and memory are key battlegrounds.
With the ZT Systems design team being part of AMD, it means that it will also have early access to new designs for the MI300 series accelerators. This will ensure that new platforms will be faster and more tightly integrated across the entire hardware chain than any other solution on the market.
Selling the manufacturing business
The decision to sell the manufacturing business is surprising. Having a single turnkey operation has benefits in terms of integration and performance. One of the reasons that hyperscalers have turned to ZT Systems is that integration and performance.
However, AMD has a number of key hardware partnerships for systems design that have delivered billions in sales over the years. It would not have wanted to risk losing those. It will also be conscious of regulators’ attention to mergers and acquisitions in the tech sector. By divesting itself of that business post-completion, it can show that it is not looking to create anything that looks like a potential conflict.
As part of that decision, it said that it wanted to find a strategic partner to sell that business to. That is likely to be an existing partner but much will depend on the price and any caveats that the deal is built on.
Enterprise Times: What does this mean?
This is a good move by AMD, and it will bring it back into contention with Nvidia, against whom it has been losing ground. It also gives it a major boost in building and designing platforms for its new MI300 series accelerators. While the company already boasts that it outperforms the Nvidia H100, having a bespoke platform ready for manufacture will be a big boost.
Having a friendly manufacturing partner will also be a boost. It means that it can focus on doing custom design work for clients. This builds on ZT Systems’ history and will appeal to its current client list.
More importantly for shareholders, while the markets are questioning the AI ROI, this deal is said to be accretive by 2025. Many shareholders will be watching closely to see if that is true.
