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MarketScreener Homepage  >  Equities  >  Nasdaq  >  NVIDIA Corporation    NVDA

NVIDIA CORPORATION

(NVDA)
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AMD, Nvidia Chip Away at Intel's Semiconductor Dominance -- Update

10/28/2020 | 01:58pm EST

By Asa Fitch

A new set of American semiconductor leaders is rising, fueled by pandemic-driven demand for their chips that they are looking to parlay into blockbuster deals to disrupt an industry traditionally dominated by Intel Corp.

The U.S. chip industry has historically been a mix of niche players, midsize companies and Intel. But this year, Advanced Micro Devices Inc., long the underdog in the computer-processor market, and Nvidia Corp., a graphics-processing specialist, are mounting their biggest challenge yet to level the playing field.

AMD said Tuesday it would buy San Jose, Calif.-based chip maker Xilinx Inc. for $35 billion. AMD, best known for its personal-computer processors, is paying for the acquisition in stock after its shares soared almost 80% this year amid supercharged demand for videogames, PCs and servers that crunch data for companies.

Nvidia, whose shares have more than doubled this year, placed its bet in September by agreeing to buy chip-design specialist Arm Holdings from SoftBank Group Corp. for $40 billion in cash and stock, in what would be the industry's largest deal to date. The transaction would extend Nvidia's reach into the booming smartphone market where Arm-designed chips dominate.

The AMD and Nvidia transactions -- which still need to pass regulatory scrutiny in the U.S. and abroad -- would put those companies on a more even footing with Intel, America's chip-making icon. AMD Chief Executive Lisa Su said being bigger is an advantage in a semiconductor landscape where development costs are rising and customers want more diverse types of chips.

America has other big chip competitors, notably Qualcomm Inc. and Texas Instruments Inc., both of which have a market value well above AMD's roughly $93 billion. But those companies largely compete in different markets: Qualcomm in mobile devices and TI in analog chips that rely on real-world signals.

The chip industry has been consolidating for years through a string of mostly smaller deals. But deal activity this year is shaping up to be unprecedented because stock valuations of some acquiring companies have soared, giving them financial leverage to make deals, said Stacy Rasgon, an analyst at Bernstein Research.

"Valuations are high and interest rates are low, and if you're going to do it, now is probably the time," Mr. Rasgon said.

Investors have rewarded companies catering to the digital transformation that businesses are undergoing, and that the coronavirus pandemic has accelerated. Nvidia this year surpassed Intel as the most valued U.S. chip maker, with a market capitalization of more than $330 billion, in part reflecting its edge in chips powering artificial-intelligence processes and a growing data-center business.

Intel has long been the dominant U.S. chip company. But a series of manufacturing missteps and more forceful competition could upend that status, according to analysts and industry officials. Intel said earlier this year that development of its next generation of chips had fallen behind. That set it on course to be technologically behind the world's top-tier semiconductor manufacturers.

Rivals are making inroads as the industry moves away from Intel's core strength -- powerful processing engines that can do all types of calculations -- toward chips made for narrower applications, such as artificial intelligence or telecommunications, said Alan Priestley, an analyst at research firm Gartner Inc.

Intel is adapting by developing its own specialist chips. Intel CEO Bob Swan is trying to move the company from focusing on dominating the central processing business to having a large role across broader applications, he said at The Wall Street Journal's Tech Live conference this month.

Last week, Intel said it was shedding some of its legacy business -- agreeing to sell its flash-memory-manufacturing business to South Korea's SK Hynix Inc. for $9 billion -- giving it firepower to go after new opportunities in 5G networking and artificial intelligence.

Whether Nvidia and AMD succeed with their costly bids is far from certain. Some analysts worry that the Xilinx deal might distract from AMD's focus on gaining market share on Intel. Both companies also have lots of ground to make up to rival Intel in revenue. Intel had sales of about $72 billion last year, dwarfing AMD's $6.7 billion and Nvidia's $10.9 billion.

Regulators and geopolitical tensions also could undo the proposed deals, as they have in the past. The Trump administration blocked what would have been the industry's biggest transaction to date -- the proposed $117 billion hostile takeover of Qualcomm by rival Broadcom Inc.

But Nvidia and AMD's recent success underlines the advantages of their business model. They focus on designing advanced chips and let someone else build them, often chip production specialists such as Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co.

Intel, by contrast, designs and builds chips, carrying the heavy costs that go into building cutting-edge plants. With its recent struggles, Intel might ask others to produce some of its advanced chips if in-house plants can't deliver. While its rivals' stocks are up, Intel's is down more than 20% for the year even as it expects to post record sales.

AMD has been mounting its biggest assault on Intel's dominance in more than a decade, driven by new chips that match or beat Intel's on performance benchmarks. AMD has increased its share of PC chip sales to more than 17% in the second quarter from about 8% three years ago, according to Mercury Research. Intel holds virtually all the rest of the market.

Nvidia, too, has broadened its challenge to Intel under CEO Jensen Huang. In addition to its plan to buy Arm, it this year closed the $7 billion purchase of Israel's Mellanox, a high-speed computer-networking specialist.

Consolidation is also gripping other parts of the chip industry. Analog Devices Inc. in July agreed to pay more than $20 billion for Maxim Integrated Products Inc. to more forcefully compete with Texas Instruments.

Intel's most recent major acquisition came two years ago when it acquired Israeli car-camera pioneer Mobileye NV for $15.3 billion. It bought mobility app Moovit Inc. this year for about $900 million.

Write to Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

10-28-20 1457ET

Stocks mentioned in the article
ChangeLast1st jan.
ADVANCED MICRO DEVICES, INC. 0.55% 87.19 Delayed Quote.90.12%
ANALOG DEVICES, INC. 1.32% 137.75 Delayed Quote.14.40%
BROADCOM INC. 1.05% 394.95 Delayed Quote.24.98%
GARTNER INC -0.86% 152.55 Delayed Quote.-1.01%
INTEL CORPORATION 0.85% 47.45 Delayed Quote.-21.39%
MAXIM INTEGRATED PRODUCTS, INC. 1.27% 82.41 Delayed Quote.32.30%
NVIDIA CORPORATION 0.20% 530.45 Delayed Quote.125.44%
QUALCOMM INCORPORATED -0.17% 143.83 Delayed Quote.63.30%
SAMSUNG ELECTRONICS CO., LTD. 2.10% 68000 End-of-day quote.21.86%
SK HYNIX, INC. 2.26% 99400 End-of-day quote.5.63%
SOFTBANK GROUP CORP. 3.19% 7089 End-of-day quote.49.05%
TAIWAN SEMICONDUCTOR CO., LTD. 0.00% 53.2 End-of-day quote.-0.75%
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED 0.41% 489 End-of-day quote.47.73%
TEXAS INSTRUMENTS 0.88% 158.99 Delayed Quote.23.93%
XILINX, INC. 1.42% 137.49 Delayed Quote.40.63%
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Financials (USD)
Sales 2021 16 456 M - -
Net income 2021 4 097 M - -
Net cash 2021 4 963 M - -
P/E ratio 2021 79,4x
Yield 2021 0,12%
Capitalization 328 B 328 B -
EV / Sales 2021 19,7x
EV / Sales 2022 16,2x
Nbr of Employees 13 775
Free-Float 61,7%
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Mean consensus OUTPERFORM
Number of Analysts 41
Average target price 583,79 $
Last Close Price 530,45 $
Spread / Highest target 32,0%
Spread / Average Target 10,1%
Spread / Lowest Target -35,9%
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NameTitle
Jen-Hsun Huang President, Chief Executive Officer & Director
Debora Shoquist Executive Vice President-Operations
Colette M. Kress Chief Financial Officer & Executive Vice President
William James Dally Chief Scientist & Senior Vice President-Research
Tony Tamasi Senior Vice President-Content & Technology