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Advanced Micro (AMD) shares tick higher while Xilinx (XLNX) shares head lower after both companies pushed back the expected timing of their acquisition close into the first quarter of 2022. The transaction was initially supposed to be finalized by the end of CY21. In our view, XLNX shareholders' reaction to the news is brought on by concerns that the deal may perhaps not close at all.

In October 2020, AMD announced that it would acquire XLNX in an all-stock transaction valued at $35 bln. The terms of the deal meant that XLNX shareholders would receive a fixed exchange ratio of 1.7234 shares of AMD stock for each share of XLNX at the time of closing. The deal represented about a 24% premium over XLNX share prices, making it quite favorable for XLNX shareholders.

We still believe the deal will end up closing. AMD noted that the reason for the delay is related to the status of global regulatory approvals, which it is continuing to make "good progress on." Also, although the deal is favorable for XLNX shareholders, AMD will also see a significant benefit from the transaction, as it strengthens its competitive position against Intel (INTC).

• XLNX commands a majority market share with its field-programmable gate arrays (FPGAs), programmable integrated circuits used in countless industries, including defense, telecommunications, and healthcare. FPGAs are dynamic, adapting to various workloads, which allows for the powering of AI at scale, making their use crucial in data centers.
• Although XLNX's FPGA is leading in market share, INTC became a close second after its 2015 purchase of Altera for $16.75 bln. However, through AMD's purchase of XLNX, it not only gains a technological advantage over INTC's CPUs, it also bolts ahead in FPGAs.
• The CPU may still be the main workhorse of most data centers, but the accelerated use of AI and the adaptive nature of FPGAs is stirring demand for FPGAs in data centers. This means that AMD could quickly become a more dominant player in the high-growth data center industry.
• AMD expects data center sales to be the most strategic part of its business in 2022. The momentum is already there. For example, in Q3, AMD's Enterprise, Embedded and Semi-Custom segment, which includes data center revenue, jumped 69% yr/yr.

Overall, despite a slight delay in the timing of the AMD/XLNX deal, we continue to believe that the deal will be advantageous to both companies' shareholders, especially as it gives AMD more tools to carve out a larger piece of the data center pie.