Reuters reports:
Any such deal would shake up the processor industry, which is witnessing a battle over market share between AMD and larger rival Intel Corp. ATI is one of two major graphics chips makers, along with rival Nvidia Corp. and is a big supplier of chipsets -- the cluster of secondary chips and interfaces that surround a computer's processor -- to both AMD and Intel.
Unless talks break down, a deal could be announced as early as Monday, the source said.Some analysts have questioned the rationale for an AMD-ATI merger, and others were surprised that the speculation received no attention from analysts during AMD's earnings conference call on last Thursday.
While the rumors have been doing the rounds for several months now I had relegated it into the same category as Duke Forever's release i.e. it would never happen. While the deal sounds good on paper I have my reservations on exactly how this deal will help AMD. Their sales this quarter are already down and they are fighting a renewed processor war with Intel who pulled the rug from under them with its Conroe series of processors.
Imagine the possibilities when processor and video functions are integrated. Maybe we really can have a whole computer on a chip. 
