Aug 19 (Reuters) - AMD on Monday said it plans

to acquire server maker ZT Systems for $4.9 billion as the

company seeks to expand its portfolio of artificial intelligence

chips and hardware and battle Nvidia ( NVDA ).

AMD plans to pay for 75% of the ZT Systems acquisition with

cash and the remainder in stock. The company had $5.34 billion

in cash and short-term investments as of the second quarter.

The computing requirements for AI have dictated that tech

companies string together thousands of chips in clusters to

achieve the necessary amount of data crunching horsepower.

Stringing together the vast numbers of chips has meant the

makeup of whole server systems has become increasingly

important, which is why AMD is acquiring ZT Systems.

"AI systems are our number one strategic priority," AMD

CEO Lisa Su said in an interview with Reuters.

The addition of ZT Systems engineers will allow AMD to

more quickly test and roll out its latest AI graphics processing

units (GPUs) at the scale cloud computing giants such as

Microsoft ( MSFT ) require, Su said.

"The main way (ZT Systems) is additive to the company is

we sell more GPUs," Su said.

AMD plans to break off its server manufacturing business and

sell it once the deal closes, as it has no plans to compete with

companies such as Super Micro Computer ( SMCI ), Su said.

AMD has not yet held talks with potential buyers.

ZT Systems Chief Executive Frank Zhang will join AMD and

report to AMD's data center chief, Forrest Norrod.

The closely held ZT Systems has roughly 2,500 employees of

which AMD plans to retain about 1,000 engineers. Currently ZT

Systems generates annual revenue of roughly $10 billion, Su

said.

Executives expect the deal to close in the first half of

2025 and expect an additional 12 to 18 months to sell the

manufacturing business.

Nvidia ( NVDA ) CEO Jensen Huang said at the company's developer

conference in March that the one-time chip designer now creates

and sells entire data centers, or the individual components

needed to build one. This year analysts expect the company to

generate $105.9 billion from its data center segment, which

includes chips and other AI hardware.

Su said last month the company expects to collect roughly $4.5

billion worth of AI chip revenue this year. The company's

customers include Microsoft ( MSFT ) and Meta Platforms ( META ).

AMD expects ZT Systems to contribute to the company's

adjusted financial performance by the end of 2025.