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Microsoft Corporation (MSFT) Could save Big If It Buys AMD

Microsoft Corporation Nasdaq:msft

Microsoft Corporation (NASDAQ:MSFT) is reportedly in takeover talks with semiconductor developer and maker AMD. According to a report from KitGuru, the talks between the software firm and the chip maker started a few months ago.

Microsoft Corporation

Big benefits for Microsoft

As Microsoft makes many hardware such as Xbox, tablets and phone, so, acquiring AMD could help in a cheaper CPU and GPU source. For AMD, the acquisition will lead to increased synergy, helping the firm to compete with names such as Intel and NVIDIA.

Another advantage for Microsoft will be related to Sony PS4. Apart from supplying chips for the Xbox One, AMD also power PS4, so after the deal the software firm will pocket a portion every PS4 unit sale. Though such a situation will be annoying for Sony, the Japanese firm won’t be able to do much except for changing the supplier. Apart from this, Microsoft firm will also benefit from the reduced cost for its own gaming console.

The analysts say that the firm pays around $100 for each Xbox One chip to AMD. Till date, the firm has sold about 12.6m units, suggesting a payment of $1.26bn to AMD. So, if it acquires AMD, it could savea big amount on the Xbox One chips alone. And savings could be much higher if the firm develops chips for Microsoft phones and the tablets.

Is AMD on sale?

Though AMD is not really profitable, but it has expertise that could attract many firms such as Samsung, Qualcomm, Xilinx and others. As AMD is presently struggling with its operations, there are good chances of it being approached by others.

Also, there are chances that the software giant buys a part of AMD as it does not require server chips or high-end graphics cards. But it very unlikely that AMD’s board will consider selling a part of the firm.

Acquiring AMD will not be hard for Microsoft as it has cash of around $95bn while AMD is valued about $1.81bn. Along with impacting the concerned parties, a deal of such scale could bring vital changes to the CPU and GPU scene. As of now, it appears to a rumor, but the potential impact and effects of the deal are very real.

On Tuesday, Microsoft shares closed down 0.50% at $44.15, and year to date the stock is down over 6%. AMD shares up 2.56% at $2.40, and year to date the stock is down almost 9%.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.

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