Rumor mill pondering AMD-ATI Tie up

Will the rumors surrounding Advanced Micro Devices never cease?

Several are speculating this week that AMD will pick up ATI Technologies, the world's largest graphics company. ATI also makes chipsets. By purchasing ATI, AMD could provide complete packages of silicon to PC makers, similar to how Intel provides processors, networking chips, and chipsets with integrated graphics to PC makers in the Centrino and Viiv platforms.

We don't know if it's true, but here are some reasons why it might not be, or why it might be difficult for AMD to pull off:

1. AMD has always boasted that it only wants to make processors, leaving networking and chipsets to others. AMD does produce some chipsets, but mostly just to get the market started. Neutrality has helped the company garner strong allies.

2. The chipset and graphics businesses bite. It's really a tough place to make money consistently--back in the late nineties the number of graphics chip companies dropped from around 40 to about five. In fiscal 2005, ATI sold $2.2 billion worth of chips and only make $17 million in part because of inventory write-downs. A lot of ATI chips end up in Intel-based computers, so that business might shrink. In the most recent quarter, ATI sold $652 million in chips and made $31 million.

3. AMD doesn't like side assignments. It spun off its flash memory group earlier and will soon, according to sources, get rid of Geode, a low-powered x86 chip group. In June, Billy Edwards, who runs the Geode group at AMD, said that he couldn't comment on what was going to happen to Geode.

Geode has been around the block. It was owned by Cyrix and then National first.