Advanced Micro Devices Inc. (AMD) has announced an agreement to acquire server maker ZT Systems in a cash and stock transaction valued at $4.9 billion.
TakeAway Points:
- AMD will pay $4.9 billion to acquire ZT Systems, boosting its AI and data centre technologies to rival Nvidia.
- The purchase, which is slated to be finalised in H1 2025, will be 75% cash and 25% stock, with a contingency payment of $400 million.
- With the goal of releasing AI GPUs more quickly, AMD intends to sell the manufacturing part of ZT Systems but keep the design teams.
AMD buys ZT Systems
This acquisition aims to enhance AMD’s data center technology and bolster its efforts to compete with Nvidia Corp. ZT Systems, based in Secaucus, New Jersey, will be integrated into AMD’s Data Center Solutions Business Group. AMD plans to retain ZT Systems’ design and customer teams while looking to sell the manufacturing division. The deal includes a contingent payment of $400 million based on certain milestones.
According to the report, ZT Systems has a strong background in manufacturing server computers for large data centers, which are increasingly investing in new artificial intelligence (AI) capabilities.
“The acquisition will significantly strengthen our data center AI systems,” said AMD Chief Executive Officer Lisa Su.
This move is part of AMD’s broader strategy to challenge Nvidia, the current leader in the market for data center gear essential for AI computing.
Artificial Intelligence’s Strategic Significance
AMD has been focusing on expanding its AI capabilities to better compete with Nvidia. The company is the second-largest provider of graphics processors, which are crucial for developing AI software. Over the past 12 months, AMD has invested more than $1 billion to expand its reach in the AI market. In July, AMD agreed to acquire Silo AI for $665 million to add AI model-making capabilities.
Lisa Su emphasized the strategic importance of AI for AMD, stating, “AI systems are our number one strategic priority.” The addition of ZT Systems’ engineers will enable AMD to more quickly test and roll out its latest AI graphics processing units (GPUs) at the scale required by cloud computing giants like Microsoft.
“The main way ZT Systems is additive to the company is that we sell more GPUs,” Su added.
Financial and operational perspectives
AMD plans to pay for 75% of the ZT Systems acquisition with cash and the remainder in stock. As of the second quarter, AMD had $5.34 billion in cash and short-term investments. The company intends to break off and sell ZT Systems’ server manufacturing business once the deal closes, as it does not plan to compete with companies like Super Micro Computer. AMD has not yet held talks with potential buyers for the manufacturing division.
ZT Systems generates annual revenue of approximately $10 billion and employs around 2,500 people. AMD plans to retain about 1,000 engineers from ZT Systems. The deal is expected to close in the first half of 2025, with an additional 12 to 18 months required to sell the manufacturing business. ZT Systems’ Chief Executive, Frank Zhang, will join AMD and report to Forrest Norrod, AMD’s data center chief.
