AMD plans to pay 75 percent of the ZT Systems acquisition in cash and the remainder in stock. The company had $5.34 billion in cash and short-term investments in the second quarter.
The computing requirements for AI have dictated that tech companies connect thousands of chips into clusters to achieve the necessary amount of power to process data. Combining large numbers of chips has meant that composing entire server systems has become increasingly important, which is why AMD is acquiring ZT Systems.
“Artificial intelligence systems are our number one strategic priority,” AMD Chief Executive Lisa Su said in an interview with Reuters.
The addition of ZT Systems engineers will allow AMD to more quickly test and launch its latest AI graphics processing units (GPUs) at the scale required by cloud computing giants like Microsoft, Su said. “The main way (ZT Systems) is additive to the company is that we sell more GPUs,” Su said. AMD shares rose more than 2%, while Nvidia rose 1.4%. “This certainly gives them a much stronger link to their customers.” data center “Customers are very important to us, so this is a positive outcome for our long-term revenue strategy,” said Creative Strategies CEO Ben Bajarin.
AMD plans to spin off its server manufacturing business and sell it once the deal closes as it has no plans to compete with companies like Super Micro Computer, Su said.
AMD has not yet held talks with potential buyers.
ZT Systems CEO Frank Zhang will join AMD and report directly to AMD data center chief Forrest Norrod.
ZT Systems, a closely held company, has about 2,500 employees and AMD said it plans to retain about 1,000 of them, resulting in about $150 million in annualized operating expenses.
ZT Systems currently generates annual revenues of approximately $10 billion, most of which comes from its manufacturing unit.
Executives expect the deal to close in the first half of 2025 and expect an additional 12 to 18 months to sell the manufacturing business.
AMD said it expects the deal to be accretive to its adjusted financial performance by the end of 2025.
Chief Financial Officer Jean Hu said the small dilution from the deal in the first year after closing in 2025 would be offset by higher GPU unit sales, creating a breakeven effect for the deal. In 2026, the acquisition will accelerate revenue growth, Hu added.
“The sale of the manufacturing business (of ZT Systems) will not have any impact on AMD in the long term,” said Kinngai Chan, managing director of Summit Insights.
Chan added that the deal could help expand its cloud customer service business. “Having more engineers helps,” he said.
Nvidia CEO Jensen Huang said at the company’s developer conference in March that the former chip designer now creates and sells entire data centers, or the individual components needed to build one. This year, analysts expect the company to generate $105.9 billion in its data center segment, which includes chips and other artificial intelligence hardware.
Su said last month that the company expects to rake in about $4.5 billion in revenue from AI chips this year. The company’s customers include Microsoft and Meta Platforms.
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