PA Semi is going to do system-on-chips for iPhones and iPods
I blogged about the acquisition here and my speculation about the purpose of the acquisition is confirmed by the Jobs quote (if you believe that he is honest here). A couple of interesting things here:
- The success of TI in the 1990s was largely down to their cosy relationship with Nokia. Essentially TI builds custom versions of their chips for Nokia. Some time later, slightly altered versions of these chips are available to other customers. This gives Nokia a time-to-market advantage over its competitors. As the relationship evolved and Nokia’s volumes grew, there was also a pricing advantage for Nokia. Both Nokia and TI has profited handsomely from this relationship.
- Apple has a history of doing silicon in-house. They build custom chips for their Macs in the 1980s.
- By bringing the SoC design capability in-house, Apple gets tremendous negotiating leverage with outside silicon companies. So even if Apple never does deploy a PA Semi design, they could pay for some (or all) of the acquisition purely via negotiating leverage.
- To the extent Apple actually does deploy a PA Semi design into an iPhone, Apple cuts out one (high-valued) participant out of the value chain. This alone probably pays for the ~$278M acquisition of PA Semi.
Finally, Apple may be gearing up to take on Nokia here. And to do that they need a strategic advantage over Nokia. As you move to higher volumes and lower prices points, not having to pay a middle-man for one of the higher priced components in your BOM is certainly a way to do this. Per the above, Nokia is already getting special pricing advantages from their relationship with TI. There is lots of risk here as well but some of that may be mitigated by PA Semi already being well on their way to a design. Apple of course would know this.
