"The synergies of this seem consistent with the recent announcements by AMD to significantly increase capacity over the next few-years," wrote analyst Apjit Walia in a note to investors Wednesday. "We believe ATI is a rare-buy in the semiconductor space right now given the near-term tie-up dynamics."
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It has long been discussed that the graphics-companies are likely to be bought by one of the microprocessor companies, according to Walia. However, for AMD-rival Intel (nasdaq: INTC - news - people ), a partnership with a graphics company may not be the best idea.

Meanwhile, Intel isn't doing quite so hot. Earlier this month, it was revealed that computer maker Dell, which has long used Intel chips exclusively in its machines, will start using AMD products as well. This comes not long after Dell's purchase of smaller manufacturer Alienware, which also uses AMD and Intel chips. Intel's recent price cuts, according to Walia, have given the company a boost in market share but have been detrimental to its bottom line. An AMD/ATI merger would make things tougher for Intel in the personal computing space, on which Walia believes Intel has been putting too much emphasis. Rather, the company should focus more on expanding to other markets, he says, given the continuing messy battle with AMD in the core PC market.