ATI and AMD to merge in $5.4bn deal

Chip-makers AMD and ATI have ended weeks of speculation by announcing a $5.4bn merger which will see processor manufacturer AMD acquiring graphics specialist ATI by the end of the year.

The deal will create one of the largest semiconductor firms in the world, and the merged firm has stated that it will focus heavily on the mobile and consumer electronics markets - where ATI already has a significant foothold, thanks in part to its console graphics chip deals with Nintendo and Microsoft.

However, desktop and portable computer components are likely to remain the core business of the merged company - and both ATI's biggest rival NVIDIA and AMD's rival Intel are likely to be considering the impact of the merger very seriously indeed.

One likely consequence is that Intel's chipsets will no longer be the platform of choice for ATI's high-end graphics solutions, which may well give the AMD / ATI combination the upper hand in the gaming system stakes.

However, as yet no material changes to either firm's partnership deals have been announced - and some analysts are predicting that AMD will continue to do business with NVIDIA, ruling out the possibility of a market where ATI and AMD solutions compete directly with NVIDIA and Intel solutions.

The deal is obviously seen as crucial to the future of the two firms involved - so much so that AMD secured a $2.5bn loan from Morgan Stanley Senior Funding to complete the deal. Technology commentators have speculated that much of the motivation may be an attempt by AMD to head off efforts on Intel's part at developing its own internal GPU technology.