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Is Apple Souring on Intel?

By Jim Offner MacNewsWorld ECT News Network
Apr 23, 2008 12:10 PM PT

Apple has purchased chip designer P.A. Semi for US$278 million in cash, according to Forbes.

Is Apple Souring on Intel?

The Santa Clara, Calif.-based firm is a self-described fabless semiconductor firm that delivers processors for the high-performance embedded-computing market. The company specializes in low-power chips that could be useful in Apple's iPhone and iPod devices. However, the deal could come as a setback for Intel, which has its own low-power chip, Atom, for mobile devices.

"It certainly gives Apple more options, because I think P.A. is a leader in ultra-power-efficient components, which is absolutely critical," Roger Entner, senior vice president of research for IAG Research, told MacNewsWorld -- "even more so with regular computers."

'A Natural Fit'

The deal is suitable for Apple and its lineup of mobile products, Pacific Crest Securities analyst Andy Hargreaves noted.

"That would be a natural fit," he told MacNewsWorld. "It's lower power and low heat, so fitting into mobility solutions would make sense."

A number of chip-design industry veterans, including Dan Dobberpuhl, launched P.A. Semi, a 150-employee firm, in 2003. Dobberpuhl was the lead designer of the DEC Alpha sand StrongARM microprocessors.

Bringing in PA Semi helps Apple keep more operations internal. "On a mobile component, for future mobile devices, they can build everything," Entner commented. That's important with a company such as Apple, which likes to keep internal developments to itself.

"It's Apple and [chief executive] Steve Jobs' security obsession," he added. "Now they keep [Apple] internalized and reduce one more source of potential information leakage."

A Different Type of Acquisition

P.A. Semi's offerings are indeed well suited for Apple, CRT Capital Group analyst Ashok Kumar told MacNewsWorld.

"They originally had designed a PowerPC architecture," he said of P.A. Semi. "Intel displaced P.A. Semi for that opportunity, so P.A. Semi focused on developing a road map for low-power solutions. And the fact that the Apple relationship never went away and that it was targeted then to a non-PC market is why Apple took that final step."

However, this is an acquisition of a slightly different tint for Apple. "This is unusual for Apple, because most of their acquisitions had a software flavor," Kumar noted. "They tended to source their components outside. The fact that they've brought this in-house probably implies that they plan on featuring P.A. Semi-designed products in iPhones and iPods."

P.A. Semi technology also could make its way quickly into MacBooks and Apple TVs, he added.

Impact on Intel

The acquisition does little to affect Apple's ongoing relationship with Intel, Kumar opined. "Apple's relationship [with Intel] will continue for mainstream products. Macs and desktops will continue to be powered by Intel. Commitments that are required there cannot be supported by P.A. Semi, so nothing can displace that."

There's no way to predict how the deal would affect Intel, Entner commented. "You can have two schools of thought. One is it does nothing. One of the key advantages of working with Intel is you can now all of a sudden with Boot Camp have Windows and Apple running on the same machine."

What happens in the future, on the other hand, is an open question, Kumar said. "It remains to be seen. The message Apple is sending to the non-PC market is pretty clear. It's very likely P.A. semiconductors are likely to appear in iPods and iPhones sooner rather than later. The original hope was that Atom products could reach the iPhones."

Neither Apple nor P.A. Semi responded to requests for comment on the deal.

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