Why Microsoft should buy AMD

Microsoft is reportedly talking to AMD about an acquisition of the company. The chipmaker hasn't been doing too well the last couple of years but did manage to become the supplier of (graphical) chips for the Sony Playstation 4 and the Xbox One.

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Both consoles contain a CPU from AMD and also the Radeon GPUs are provided by AMD. Despite that the popular consoles are powered by AMD chips, the chip manufacturer is not doing well. AMD is currently valued at $1.8 billion, while AMD bought graphic card manufacturer ATI for $5.4 billion in 2006.

The latest generation of AMD graphic cards are good, but not excellent, which is why Nvidia maintains a substantial lead. AMD also sells CPUs, but in that market it competes with Intel which has a far bigger market share.

Meanwhile Microsoft happily pays $100 per Xbox One to AMD. Because Microsoft announced it has sold more than 12 million Xbox consoles, it means Microsoft already paid $1.2 billion to AMD. If that continues, Microsoft has paid more to AMD than the chip manufacturer is valued at. This makes AMD an interesting acquisition candidate for Microsoft, which has more than $95 billion in cash.

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The deal would benefit Microsoft as an important component of the Xbox One would be cheaper and it would even generate income from the Xbox One's competing console, the Playstation 4. AMD's CPUs could also be used to power Surface tablets or Microsoft can dump the company again, like it did with Nokia. If Microsoft doesn't end up buying AMD, then Qualcomm might another likely candidate.

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