AMD spends $1.6 billion to keep 1,200 engineers in Nvidia fight

Investing.com -- AMD (NASDAQ:AMD) has finalized a deal to divest the manufacturing segment of ZT Systems, selling it to Sanmina Corporation (NASDAQ:SANM) for $3 billion. The transaction, announced on May 19, includes $2.55 billion in cash and stock, along with up to $450 million in potential earnouts over the next three years.

The move follows AMD’s acquisition of ZT Systems last August for $4.6 billion. From the outset, the company signaled its intention to separate the low-margin manufacturing arm from the rest of the business.

Instead, AMD aimed to retain ZT’s engineering talent to bolster its position in the competitive data center GPU market.

“We previously expected AMD to sell ZT Systems for closer to $5.0 billion or 1.0X TTM sales. While we would note that system manufacturing is a low-margin business, Supermicro trades at 1.2X TTM sales,” Citi analysts said in a note.

AMD is holding onto ZT’s 1,200-person engineering team, which it effectively values at $1.6 billion—or around $1.33 million per engineer. The team’s experience in data center architecture and system deployment is seen as strategically important for AMD’s efforts to narrow the gap with Nvidia (NASDAQ:NVDA).

Citi believes the acquisition could improve AMD’s execution in the hyperscale data center space.

“We believe the ZT Systems acquisition should allow AMD to better compete with Nvidia in the data center GPU market via additional system experience and faster hyperscaler deployment times,” the bank wrote.

Sanmina has agreed to acquire the manufacturing operations of ZT Systems for $2.25 billion in cash, along with an additional $300 million premium—half in cash and half in equity.

In the event the deal falls through, AMD would be eligible to receive a termination fee of up to $153 million.