November 12, 2009, 7:40 PM — As industry insiders attempt to gauge the impact of economic recovery on IT, acquisitions and legal deals among vendors including Intel, Advanced Micro Devices, Hewlett-Packard, 3Com and Logitech are sparking investor interest by altering the shape of the tech market.
At first blush, AMD is one of the big winners. The company and its archrival, Intel, announced on Thursday that they have settled all antitrust litigation and patent cross-license disputes between the companies. Intel will pay AMD US$1.25 billion. AMD's share price jumped 22 percent to close the day at $6.48, up by $1.16.
The deal gives AMD a much-needed cash infusion. But ultimately the real winner may be Intel, even though it will take a big earnings hit for the quarter. As a result of the legal settlement, Intel said it expects its spending in the fourth quarter to be approximately $4.2 billion, up from $2.9 billion.
However, the chip giant needs the competition from AMD to stay fresh and focused, and to allay antitrust concerns. The deal also allows Intel "to focus on its real long-term threat," according to industry analyst Jack Gold. "No, it’s not AMD – its ARM Holdings and all of the licensees of the ARM chip designs (e.g., Qualcomm, TI, Freescale, Nvidia, Samsung, Marvel). While PC and server chips are its breadwinner today, Intel rightly understands that the sheer number of personal and consumer intelligent computing devices that will be built over the next several years will far outnumber the traditional PC marketplace," Gold said in e-mail.
Intel shares dropped $0.16 to close at $19.68. That doesn't mean that IT investors thought the AMD deal was bad for Intel; most tech bellwether shares dropped Thursday on macroeconomic concerns. The Treasury Department reported that the federal deficit for October totaled $176.4 billion, higher than economists expected. The federal deficit for the budget year, ended Sept. 30, set an all-time record in dollar terms of $1.42 trillion. High deficits may push up interest rates, which could in turn hurt what looks to be a slow, fragile recovery.
The signature M&A deal of the week was HP's $2.7 billion acquisition of network switch maker 3Com. The purchase is a challenge to networking giant Cisco Systems and a major step toward HP's ability to provide a one-stop shop for computing, storage, services and networking. Cisco earlier this year started selling servers, which made it more of a direct competitor to HP.
However, the deal may have its biggest impact not on Cisco, but on smaller networking players like Brocade Communications. Brocade shares Thursday slumped to close at $8.08, down by $1.17 or 12.7 percent. Cisco shares declined by only 2.17 percent, dropping $0.52 to close at $23.40. The HP acquisition takes Brocade out of play as a possible acquisition target by HP while increasing competitive pressure.