AFI BLOG: Media and Technology

I, Cringely

Apple this week bought a fabless chip company called PA Semiconductor and pundits far and wide are trying to explain the deal with broadly varying ideas, some of which are close but none seem to really understand what the deal is about. In the short term this acquisition means precisely nothing to Apple users. In the long term it could be quite significant, however, and gives a number of tantalizing hints about Apple’s hardware strategy.

Why would Apple, having already jumped from PowerPC to Intel, spend $278 million to buy a company that is best known for designing PowerPC chips? Are they preparing to dump Intel? No. Does it have anything to do with Intel? Yes.

This deal has Steve Jobs’ fingerprints all over it. His first formal position at Apple was as head of purchasing and Jobs was known for pushing suppliers to ever lower component prices. He still brings to his work a purchasing manager’s perspective and a desire to beat up suppliers whenever possible. So in that sense this acquisition is all about Intel. And the purchase price, which probably appeared to have been pulled right out of the air by Jobs, who then wouldn’t budge from the figure, is really based on Apple’s target savings over the next two years after forcing Intel to cut prices based on fear of a possible Apple switch back to PowerPC.

“We got it for free!” I’m sure someone at Apple said after factoring in the expected Intel price cuts. There is nothing that makes Jobs happier than forcing one supplier to effectively finance its own demise. It’s that Devil thing again.

Whether PA Semi cost $1 or $278 million, Apple still has to DO something with the company and its technology and there has been some speculation that we’re looking at the next iPhone chip, or perhaps the one after. That is very unlikely. PA Semi has aimed at workstation and server and high-power embedded chips that use far too much power for any iPhone. And while many pundits argue (and PA Semi even told some of its customers) that Apple was mainly acquiring intellectual property (IP), companies aren’t typically bought that way these days. They are purchased for what they have already completed, not for what they might do in the future. There’s a PA chip that Apple wants very badly but it won’t go in an iPhone.

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