Shares of Advanced Micro Devices Inc. (AMD, Financial) tumbled over 4% on Tuesday on the heels of reporting its third-quarter earnings results. The company also announced that it entered a definitive agreement to acquire rival semiconductor company Xilinx Inc. (XLNX, Financial).
AMD earnings summary
The Santa Clara, California-based semiconductor company reported net income of $390 million, or 32 cents in earnings per share, compared with net income of $120 million, or 14 cents in earnings per share, in the prior-year quarter. Adjusted net income of 41 cents per share topped the consensus estimate of 35 cents per share.
AMD CEO Lisa Su said that revenue increased over 25% year over year for the fourth consecutive quarter, highlighting strength in the company's customer momentum. Third-quarter revenue of $2.80 billion increased 56% year over year and 45% over the past quarter, driven by higher sales in the company's Enterprise, Embedded and Semi-Custom and Computing and Graphics segments.
Company announces merger agreement with rival chipmaker
Despite reporting results that topped estimates, shares of AMD closed at $78.88, down over 4% on the back of announcing a merger with Xilinx. Nonetheless, the stock remains significantly overvalued based on a price-to-GF Value ratio of 2.58.
AMD and Xilinx announced that the two companies entered into a definitive agreement in which AMD will acquire the San Jose-based chipmaker in an all-stock merger valued at $35 billion. Under the agreement terms, shareholders of Xilinx will receive a fixed exchange ratio of 1.7234 shares of AMD common stock per Xilinx share.
Su and Xilinx CEO Victor Peng said that the combination seeks to unite AMD's engineering teams and domain expertise with Xilinx's portfolio of solutions and drive innovation from the cloud and enable leadership computing platforms for cloud, edge and end devices.
Shares of Xilinx closed at $124.35, up 8.56% from the previous close of $114.55. Based on a price-to-GF Value ratio of 1.32, GuruFocus labels Xilinx as significantly overvalued.
GuruFocus ranks Xilinx's profitability 9 out of 10 on several positive investing signs, which include a three-star business predictability rank and an operating margin that is outperforming over 90% of global competitors despite declining approximately 3.1% per year on average over the past five years.
Gurus with holdings in Xilinx include Jim Simons (Trades, Portfolio)' Renaissance Technologies, Pioneer Investments (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio)'s Gotham Capital Management.
See also
According to GuruFocus' industry overview pages, the largest semiconductor companies in terms of market cap are Nvidia Corp. (NVDA, Financial), Intel Corp. (INTC, Financial), Broadcom Inc. (AVGO, Financial) and Qualcomm Inc. (QCOM, Financial).
Disclosure: Long Intel.
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