In Short:
AMD plans to acquire ZT Systems for $4.9 billion to enhance its AI chip offerings and compete with Nvidia. The deal will be funded mostly with cash and aims to strengthen AMD’s server capabilities. ZT Systems, generating $10 billion annually, will help AMD scale its AI graphics processing units. The acquisition is expected to close by mid-2025, aiming for better financial performance shortly after.
By Max A. Cherney
AMD announced on Monday its intention to acquire server manufacturer ZT Systems for $4.9 billion. This acquisition is part of the company’s strategy to expand its portfolio in artificial intelligence (AI) chips and hardware, positioning itself to compete more effectively against Nvidia.
Acquisition Details
The financing structure for the acquisition will consist of 75% cash and the remainder in stock. As of the second quarter, AMD reported having $5.34 billion in cash and short-term investments.
Strategic Significance
The requirements for AI computing have led technology firms to assemble thousands of chips in clusters to achieve substantial data processing capabilities. This has rendered the configuration of entire server systems crucial, further justifying AMD’s decision to acquire ZT Systems.
AMD’s shares rose nearly 3% in premarket trading following the announcement. AMD CEO Lisa Su emphasized, “AI systems are our number one strategic priority,” during an interview with Reuters.
Operational Enhancements
The addition of engineers from ZT Systems is expected to accelerate AMD’s ability to test and deploy its latest AI graphics processing units (GPUs) at a scale that meets the demands of major cloud computing firms, including Microsoft. Su noted, “The main way ZT Systems is additive to the company is we sell more GPUs.”
Future Plans
AMD intends to separate its server manufacturing business and sell it post-acquisition, having no intention to compete with firms like Super Micro Computer, according to Su. As of now, AMD has not initiated discussions with potential buyers for this business.
ZT Systems Chief Executive Frank Zhang will join AMD and report to Forrest Norrod, AMD’s data center chief. ZT Systems, a privately held company, employs approximately 2,500 individuals, and AMD plans to retain around 1,000 engineers post-acquisition. Currently, ZT Systems generates roughly $10 billion in annual revenue, Su stated.
Timeline for Completion
Executives anticipate that the acquisition will close in the first half of 2025, with an additional 12 to 18 months required to divest the manufacturing business.
Industry Context
Nvidia CEO Jensen Huang remarked at the company’s developer conference in March that they have evolved from being a chip designer to producing complete data centers and individual components. Analysts forecast that Nvidia is expected to generate $105.9 billion from its data center segment this year, which encompasses chips and other AI hardware.
Last month, Su indicated that AMD expects to accumulate around $4.5 billion in AI chip revenue this year, with customers including Microsoft and Meta Platforms.
With the integration of ZT Systems, AMD anticipates that this acquisition will enhance its adjusted financial performance by the end of 2025.
