On August 19, AMD announced that the company will acquire server manufacturer ZT Systems in the form of a transaction of 75% cash and 25% stock, with a transaction value of US$4.9 billion. Subsequently, AMD held a conference call on the matter.

According to reports, AMD's acquisition is to expand its own AI chip and hardware product portfolio and compete with Nvidia, the leader in this field. Since AI computing requires technology companies to connect thousands of chips in series into clusters to achieve the necessary data processing capabilities. This means that the composition of the entire server system is becoming increasingly important, which is why AMD acquired ZT Systems.

In addition to its own cash, AMD will also issue bonds to raise funds for the acquisition. The financial report shows that as of the second quarter, AMD's total cash equivalents and short-term investments on its account were approximately US$5.34 billion.

According to the introduction, ZT Systems was founded in 1994 and has become an industry leader with its design, integration, manufacturing and deployment capabilities. It has many years of experience in designing and deploying data center AI computing and storage infrastructure for large cloud computing companies and corporate customers. Moreover, Nvidia has long been a customer of ZT Systems, which has provided AI services for GB200 GPU products, and the two companies are in an upstream and downstream relationship.

AMD emphasized that ZT Systems has extensive experience in designing and optimizing cloud computing solutions. This acquisition will also help cloud and enterprise customers significantly accelerate the large-scale deployment of AI infrastructure powered by AMD, that is, allowing AMD to provide leading AI training and reasoning solutions based on cross-chip, software and system innovations.

In the conference call, AMD CEO Lisa Su pointed out: "2024 is the beginning of the next AI cycle. It is expected that by 2027, the AI ​​accelerator market will grow to US$400 billion. We must have the ability and expertise to optimize at the system rack and even data center level. Large-scale clusters are becoming more and more complex, which is why we acquired ZT Systems."

It is worth mentioning that Lisa Su also emphasized the long-term partnership between AMD and ZT Systems. Seven years ago, ZT Systems had already carried out extensive cooperation with AMD to help it develop optimized AI systems and cluster solutions. The two companies jointly completed the first EPYC design and MI 250 design, and devoted themselves to the design process of MI 300.

After the transaction is completed, with 1,000 ZT Systems engineers joining AMD, AMD will increase its annual operating costs by approximately US$150 million, and ZT Systems founder and CEO Frank Zhang will also join AMD to lead the server system manufacturing business and report to Forrest Norrod, head of AMD data center.

In addition, since AMD has no intention of competing with companies such as AMD, the company will also split and sell ZT Systems' server manufacturing business and retain its system design business. Currently, ZT Systems has an annual revenue of approximately US$10 billion, most of which comes from its manufacturing division.

Although approved by the board of directors, AMD still needs to wait for regulatory approval. The transaction is expected to be completed in the first half of 2025 and will take an additional 12 to 18 months to sell the manufacturing business. It will achieve value-added on a non-GAAP revenue basis by the end of 2025.

Lisa Su said: "AI systems are our top strategic priority. The addition of ZT Systems engineers will enable AMD to test and launch the latest AI GPUs faster to meet the needs of cloud computing giants such as Microsoft. The main benefit that ZT Systems brings to the company is to expand GPU sales."

Creative Strategies CEO Ben Bajarin believes that this transaction is a "net positive" for AMD's long-term revenue strategy because it will strengthen the connection between AMD and data center customers and enable it to occupy more market share in 2027.

This transaction is one of AMD's largest transactions since the acquisition of Xilinx and the acquisition of ATI Technologies for $5.4 billion in 2006. And AMD's investment in the field of AI is far more than that.

In the past 12 months, in addition to increasing organic R&D activities, AMD has also participated in the $1 billion financing of AI data platform Scale AI and investments in AI startups such as Firework AI. Last month, AMD just completed the acquisition of Silo AI, the largest private laboratory in Europe, for approximately $665 million, integrating AI into customers' products and operations.