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AMD folds in ATI for graphics future

Newly merged company outlines its plans to deliver a combination PC/graphics processor by 2008 or 2009.

Advanced Micro Devices completed its $5.4 billion acquisition of ATI Technologies Tuesday, paving the way for its expansion into chipsets and graphics technology.

The company announced a project code-named Fusion that will aim to deliver a PC processor with an integrated graphics processor core by 2008 or 2009, as outlined earlier this year by AMD Chief Technology Officer Phil Hester. Before that becomes a reality, AMD will use ATI's expertise in chipset design to offer its customers the combination of a PC processor and a chipset, which has been Intel's strategy for several years.

One of the reasons behind the deal was AMD's desire to offer a more complete product to its PC customers. The chip maker is rubbing elbows with the big PC companies these days, nurturing an extensive portfolio at Hewlett-Packard and a growing presence inside Dell. Companies that ship millions of PCs like to have the option of purchasing a processor and a chipset, which connects the processor to the rest of the system, all in one transaction, Hester told CNET in September.

AMD had relied on third-party companies like Nvidia and ATI for chipsets that worked with AMD processors, but it will now design and build those products itself with the acquisition of ATI's chipset technology. It's not clear whether the combined company will continue to make chipsets for Intel's products, which would make for an interesting exercise in diplomacy between the two chipmaking rivals.

But AMD also believes that graphics processors will become an even more vital part of a PC in future years, as more sophisticated games and multimedia applications are developed. It can now offer PC companies chipsets with built-in graphics as well as chipsets that accommodate ATI's more-powerful discrete graphics chips. Intel has become the largest supplier of PC graphics technology by shipping chipsets with basic integrated graphics technology good enough for mainstream PC users, eroding some of the market once held by Nvidia and ATI's separate graphics processors.

AMD took on more debt in order to complete the deal. It borrowed $2.5 billion in cash from Morgan Stanley Senior Lending in order to make the $4.3 billion cash payment to ATI's shareholders. It completed the deal by issuing 58 million shares of AMD stock to ATI shareholders, bringing the total value of the transaction to $5.4 billion.