AMD Buys SeaMicro, Heads Toward $9 - TheStreet

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.



) --


(AMD) - Get Report

has completed its acquisition of SeaMicro as part of its strategy to regain lost server market share from


(INTC) - Get Report

and better position itself against future competition from ARM-based players such as


(NVDA) - Get Report

. We previously wrote on how

AMD can benefit from this acquisition. Here we take a brief look at the price that AMD paid for SeaMicro, and what this implies about its growth expectations.

See our

complete analysis for AMD.

AMD shelled out $334 million for the acquisition of SeaMicro. Since SeaMicro's revenues and other financials were not disclosed, it becomes difficult to gauge whether the price paid was cheap or steep. However, based on certain assumptions, it is possible to understand the range of AMD's growth expectations from SeaMicro.

For the purpose of calculations, we assume that SeaMicro operates at an EBITDA margin of close to 25% and apply similar corporate expenses (as a percent of revenues) including taxes, capital expenditures and others that we apply for AMD. If we assume SeaMicro's revenue for 2012 will be somewhere around $50 million, it implies that AMD expects SeaMicro's revenue to grow at an average annual rate of 43% to 44% over the course of our forecast period, which extends to 2018. These revenues include both SeaMicro's revenue as well as incremental benefit in server-related revenue from the acquisition.

On the other hand, if we assume SeaMicro's revenue for 2012 to be $150 million, it implies that AMD's growth expectation for SeaMicro and related incremental server revenues stands at somewhere around 16% to 17%.

According to AMD's own calculations, it has paid a handsome price for the acquisition.

Our price

estimate for AMD stands at $9.12, implying a premium of a little under 15% to the market price.



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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.