Apple Thrusts Ahead on Convergence by Acquiring PA Semi

Late Tuesday, Forbes.com reported that Apple (AAPL) had agreed to buy PA Semi, a 150-person microprocessor design company. Coming on the eve of its quarterly earnings announcement, the deal rumored to be worth $278 million has caught many chipset and handset vendors by surprise.

PA Semi was started in 2003 to design and develop high-performance low-power PWRficientTM processors targeting high-performance embedded computing and control markets. The team is headed by the visionary designer Dan Dobberpuhl and is backed by Bessemer Venture Partners, Highland Capital Partners, and Venrock Associates. The 64-bit multi-core processors, the company claims, is “three to four times lower power than other similar processor platforms available today.”

I will leave further details of this deal to the frenzy of articles you will find on the web today. To me there are two very interesting questions to be addressed. Why should Apple buy PA Semi? What are the industry ramifications? I will pen my thoughts on the first question here, and leave the second to a sequel.

The Apple spokesperson declined to comment on the plans and purposes of the acquisition. But there are definitely some obvious angles that I can think of.

Firstly, Apple knows very well that the future is about mobility, future is about technology convergence. Mobility, in turn, is limited by power and battery life. Whether it is the iPhone, the iPod or the Air, Apple has pushed its vendors towards efficient power management. Moving into the future, the company is perhaps looking to use this as a further differentiator from the innumerous clones springing up in the market. It wants to be the only one to leverage the design superiority of these PWRficientTM processors for most, if not all its mobile platforms.

Secondly, PA Semi’s homepage proclaims the words ‘green computing’ in bold letters. Combine this with the timing of the announcement – Earth Day – and you get the message that Apple is trying to drive. It is committed to low-power, it is committed to going green.

Thirdly, an in-house application processor development unit, especially for Apple, will enable tighter and more efficient integration. This will also allow for further form-factor and power optimization. Customized software applications that enhance the user experience can be written. Furthermore, the internal development and optimization strategy will make it difficult for the copy-cats to reverse engineer. This certainly creates more value for any mobile product that comes from the Apple stable.

In summary, Apple has made this acquisition as a very well-thought out strategic initiative. While it is unlikely that we will see PA Semi-enabled products in the next year or two, you will likely find it as the application processor not just for the iPhone, but for most of Apple’s future convergence devices – mobile phones, music players and laptop replacement devices. In a sequel, I will look at what this means to the other chipset vendors sharing the luscious mobile pie.

(For the interested reader, I have covered iPhone and its impending 3G successor in great detail in my site. You can access it here, here and here.)

Comments

[digivision]

"While it is unlikely that we will see PA Semi-enabled products in the next year or two"

don't underestimate the power of Steve Jobs :-)

[Macolyte]

Seriously - throw the creative and energetic abilities of Apple together with the obviously bleeding edge designs from PA and you'll see the 1st widget by end of year!

[raman kandola]

Very well thought... and written. This is a 10 bagger for Apple in the long run, in the next few years. It would be all "green" economics that would make the headlines, and consumer would rather pay some extra amount for being green.

[DickM]

Synergy underlays all of this. Competition is aced out whenever synergistic components, software, and people come into play as they have already with Apple's innovation products.

[Daveed]

I wonder if Apple is considering resurrecting a line of Power-based laptops. They might be able to pull it off because their own software is still dual-target ("Universal binary"), though it would probably cause too much confusion in the market (e.g., "You can run Windows on this new model, but not on this other new model"). Still, it might be a useful card in negotiating with Intel for better desktop/laptop hardware too (in addition to more probable applications in handheld/set-top devices).

[Ramdas]

For any other company to do something like this would be a dumbass idea - designing and taking high-performance semiconductors to market is not child's play. Apple is an extraordinary company and may be able to defy the odds; however, I feel that this is driven not by brilliant strategic thinking but by hubris.

[Ken Singh]

You guys are missing very important targeted market for which PA Semi focused on............

"Storage & Networking"

This very important part of the Home Networked devices

Brilliant move

I have followed PA SEMI development since chip was launched and recent "NEC" adopted the chip for Storage syatems

[taro76w]

Aplle is not taking any PA products to market, Jobs is too smart for that. The current line of processors will be retired and this wizard design team used for captive tiny footprint SoC designs only.
I wouldn't feel too good holding Samsung too close to my heart either: Very smart move, AAPL no doubt plans on taking a future lead in the mobile communications market. Taro76w

[taro76w]

I actually wrote this msg yesterday. In the meantime we know about the possible complications coming from PA's involvement in several defense programs. Maybe their fab (T.I.) bails them out here? In theory if having access to all the tools they could produce the existing product. Taro