Ensuring that Intel Corp will have at least one serious competitor to limit its dominance of the desktop, Advanced Micro Devices Inc is to acquire NexGen Inc for shares worth $861m – agreed terms are 0.8 of an Advanced Micro for each of NexGen’s 41m shares out. The move is widely seen as benefitting both companies, NexGen because IBM Corp had proven a less than ideal chip foundry and was unable to meet NexGen’s requirement, and NexGen was therefore running out of cash, Advanced Micro because its problems with the K5 answer to the Pentium had crippled its sixth generation development effort whereas NexGen is almost ready with an Nx686 to challenge Intel’s Pentium Pro. The combination will benefit from Advanced Micro’s fabrication capacity, commitment to making the NexGen parts, and marketing muscle, and the K6 design work will be dumped in favour of the Nx686. Compaq Computer Corp, Ing C Olivetti & Co SpA and Ascii Corp together own 37% of Nexgen and will end up with very much less of Advanced Micro. They benefit because NexGen will survive without their having to find new money, and where selling their NexGen shares in the market would likely have driven the price dramatically against them, they can realise their investment by selling shares of the much larger Advanced Micro without much affecting the price. During the conference call on Friday evening, Advanced Micro chief Jerry Sanders hinted that the two companies would not be able to challenge Intel in the market for sixth-generation chips immediately, saying that 1996 would be a transitional year. This suggests that it may plan to take time to make the NexGen chip pin-compatible with the Pentium Pro; the Nx586 will not plug into a Pentium socket and requires a board redesign. Sanders sees the deal rescuing his dream of 30% market share in 1998. The deal will not please Intel much: it creates a much more serious competitor, and one that has the Pentium designer, Vinod Khosla, on the staff. He joined NexGen earlier this year and is expected to stay. Both companies said that the deal would not result in any lay-offs and that NexGen, based in Milpitas and employing 165 people will become an Advanced Micro subsidiary. Atiq Raza, president and chief executive of NexGen is to retain his current positions and will become a vice-president, a member of the Advanced Micro board and the company’s chief technical officer, and will report to Sanders.