Friday, October 06, 2006

Intel Rumored To Buy Nvidia.

Nvidia, which provided the GPU for the original Xbox and is now providing the GPU for Sony's PlayStation 3, could be acquired by chipset giant Intel, according to Wall Street speculation. Investors have thought that Intel would buy Nvidia for months following AMD's ATI acquisition.

Speculation regarding a possible buyout of leading graphics technology company Nvidia by PC chip manufacturer Intel has been running rampant in the last day or two, as the rumor "spread quickly across Wall Street trading desks," according to a Reuters report.

In late July Intel rival Advanced Micro Devices (AMD) acquired Nvidia's biggest competitor ATI Technologies for $5.4 billion. The acquisition of ATI will enable AMD to enter the market of graphics chip manufacturing. In order to counter AMD/ATI, some believe it would make sense for Intel to acquire the other major remaining graphics chip maker Nvidia.

Many investors are convinced that a buyout of Nvidia is imminent, and the market has responded accordingly. On Wednesday, Nvidia's shares climbed more than 8 percent amid buyout speculation. In fact, according to market research firm Track Data more than 33,500 Nvidia calls were traded in the U.S. options market before noon on Wednesday, which is more than twice their normal volume over the last 20 trading days. "There is speculation that Intel will make an acquisition announcement tonight," Bill Lefkowitz, options strategist at brokerage firm vFinance Investments, told Reuters yesterday, there's been no announcement yet, however.

There are others, though, that don't think an Nvidia buyout by Intel would make much sense. First, many industry observers have noted that Nvidia may be too expensive because the company has a stock market capitalization of about $10 billion. Intel would have to pay much more than what AMD paid for ATI. Second, unlike AMD prior to the ATI purchase, Intel already does sell some graphics chips and it's been expanding its business in this area by hiring engineers who specialize in the field.

Furthermore, according to Pacific Growth Equities analyst Satya Chillara Nvidia Chief Executive Jen-Hsun Huang isn't prepared to relinquish control of the company just yet. "There are psychological, emotional and financial variables at play," commented Chillara.

"We think it's wrong to assume that Nvidia must be a potential target for Intel just because AMD is buying ATI Technologies," Merrill Lynch analyst Joe Osha wrote in a research note. "What AMD wanted out of its deal was a workable platform strategy. Intel has that already".

The AMD-ATI deal could still be a factor though, according to Kintisheff Research analyst Tsvetan Kintisheff, who wrote, "Intel has quickly turned to Nvidia as the GPU partner of choice and demonstrated systems based on Nvidia graphics on two recent occasions--the Core 2 Duo product launch event and the fall IDF... Intel has no choice but to work with the GPU vendor at any terms now--in fact, this is a key rationale for Intel to buy Nvidia. A partner with huge bargaining power might be bought out and turned into a subsidiary".

Nvidia's stock as of press time is down 87 cents to $30.21.


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