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AMD announced on Monday that it plans to pay $4.9 billion to acquire ZT Systems, a company that designs cloud computing and artificial intelligence data center equipment, challenging Nvidia's dominance in AI computing.

According to media reports, the transaction will be completed in a stock-and-cash combination. AMD plans to pay 75% of the acquisition price of ZT Systems in cash and the remainder in stock, including a conditional payment of up to $400 million, which will be paid after the acquisition is completed and certain indicators are met.

Some analysis shows thatThe demands of artificial intelligence computing dictate that technology companies need to string together thousands of chips into clusters to achieve the necessary data processing capabilities. Stringing together a large number of chips means that the composition of the entire server system becomes increasingly important, which is why AMD acquired ZT Systems.AMD hopes to acquire ZT Systems to provide large data center customers such as Microsoft and Meta with a wider range of chips, software and system design products, promising to improve performance through tight links between these products.

ZT Systems, based in Secaucus, New Jersey, was founded in 1994 and is privately held. The company designs and manufactures the servers, server racks and other infrastructure that house and connect the chips in the giant data centers that power AI systems like ChatGPT.

According to the financial report, the company's annual sales exceed $10 billion, almost half of the $22.7 billion in revenue reported by AMD last year. However, AMD plans to sell ZT's manufacturing business after completing the acquisition and retain its system design business.

AMD CEO Lisa Su said that ZT's greatest value to AMD is that it can provide more direct help to customers so that their companies can build huge data center clusters for training AI systems. The addition of ZT Systems engineers will enable AMD to test and launch its latest artificial intelligence GPUs faster to meet the needs of large cloud computing companies like Microsoft.

“It allows me to say to customers, let me help you build your next training cluster, tell me what you think is important. I now have a very large design team that can help you do that.”

AMD said the transaction is expected to be completed in the first half of next year, subject to regulatory approval, and it is expected to take an additional 12 to 18 months to sell the manufacturing business. ZT CEO Frank Zhang will continue to stay after the acquisition and report to Forrest Norrod, head of AMD's data center. Zhang said joining AMD will help ZT "play a greater role in designing the AI ​​infrastructure that defines future computing."

The analysis believes thatThe deal could make AMD more competitive against Nvidia, and Nvidia has also been actively increasing its data center products in recent years. For example, Nvidia acquired the networking company Mellanox for nearly $7 billion in 2020, bringing supercomputing-level data transmission capabilities to help it maintain its advantage in the AI ​​boom. In addition, Nvidia is also increasingly focusing on the design of servers and data centers.

However, in recent years, AMD has also taken other steps to strengthen its data center strength, including acquiring chipmaker Xilinx in an all-stock transaction in 2022, which was valued at nearly $50 billion at the time. Also in 2022, AMD acquired data center chip and network startup Pensando Systems for $1.9 billion.

While Nvidia has been the main beneficiary of the AI ​​boom in the chip industry, Advanced Micro Devices is also gaining ground. Last month, AMD raised its forecast for AI chip sales this year to $4.5 billion, from a forecast of $3.5 billion in January, after reporting quarterly results that beat analyst expectations.

The ZT deal is one of AMD’s largest since its Xilinx acquisition and its $5.4 billion purchase of ATI Technologies in 2006. AMD announced a smaller AI-related deal last month, paying about $665 million to acquire Silo AI, a Finland-based company that helps customers integrate artificial intelligence into their products and operations.

After the news of the acquisition plan came out, AMD's U.S. shares rose 2.45% to $152.20 during trading on Monday.