AMD to acquire server builder ZT Systems for $4.9 billion in cash and stock

20.08.2024

AMD announced on Monday its plan to acquire server manufacturer ZT Systems for $4.9 billion, aiming to enhance its portfolio of AI chips and hardware, positioning itself against Nvidia. AMD intends to fund 75% of the acquisition with cash, while the remaining 25% will be covered by stock. As of the second quarter, AMD held $5.34 billion in cash and short-term investments.

The growing computational demands of AI necessitate linking thousands of chips in clusters to achieve the required processing power. This increasing importance of complete server systems is the primary reason behind AMD’s decision to acquire ZT Systems.

“AI systems are our top strategic priority,” AMD CEO Lisa Su told Reuters in an interview. Su highlighted that the addition of ZT Systems’ engineers will enable AMD to expedite the testing and deployment of its latest AI GPUs at the scale needed by cloud computing giants like Microsoft.

“The primary benefit of ZT Systems to AMD is that it will boost our GPU sales,” Su added.

Following the announcement, AMD’s shares rose by more than 2%, while Nvidia’s shares saw a 1.4% increase. Creative Strategies CEO Ben Bajarin commented, “This acquisition undoubtedly strengthens AMD’s relationship with its data center customers, which is a positive for their long-term revenue strategy.”

AMD plans to divest its server manufacturing business after the deal is finalized, as it does not intend to compete with companies like Super Micro Computer, Su stated.

AMD has not yet initiated discussions with potential buyers. ZT Systems’ CEO Frank Zhang will join AMD, reporting to Forrest Norrod, AMD’s data center chief. ZT Systems, a privately held company, has around 2,500 employees, and AMD plans to retain about 1,000 of them, which will result in approximately $150 million in annual operating expenses. ZT Systems currently generates about $10 billion in annual revenue, primarily from its manufacturing division.

Executives anticipate the deal will close in the first half of 2025, with an additional 12 to 18 months expected to sell the manufacturing business. AMD projects that the acquisition will contribute to its adjusted financial performance by the end of 2025.

CFO Jean Hu mentioned that any slight dilution in the first year after the deal closes in 2025 would be balanced by increased GPU sales, leading to a break-even outcome. By 2026, the acquisition is expected to accelerate revenue growth.