Apple to make graphics chip buy

Apple Computer is in the final stages of acquiring all or part of Raycer Graphics, a graphics chip designer, in an apparent bid to strengthen the 3D capabilities of Apple computers, sources say.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
Apple Computer is in the final stages of acquiring all or part of Raycer Graphics, a graphics chip designer, in an apparent bid to strengthen the 3D capabilities of Apple computers, sources said.

The motive for the acquisition in not completely clear, but the purchase could be part of a plan on Apple's part to bring "integrated" processors and chipsets to the Mac platform. Integrated processors or chipsets fuse the graphics chip into other basic silicon. Integrated chips don't deliver the same performance as separate chips, but they are cheaper.

Another motive for the acquisition likely lies in obtaining the patent portfolio and design team at Raycer, said Jon Peddie, principal analyst with Jon Peddie Associates, a consultancy based in Tiburon, California. One person that could come to Apple is Jerome Duluk, Raycer's chief technology officer and the designer of many of the company's patents.

The terms of the acquisition were not disclosed and representatives from both Apple and Raycer declined to comment. Third-party sources close to Raycer, however, stated that Apple is ironing out the final details in a deal to acquire assets and intellectual property of the 3D chip designer. One source estimated the value of Raycer at around $20 million.

Investors in Raycer include Sevin Rosen Funds, a venture firm founded by Compaq executive Ben Rosen, and Paul Allen's Vulcan Ventures.

Raycer is one of a number of graphic chip designers trying to be heard in an overcrowded field. The company's ambition has been to make high-end 3D graphics for workstations and eventually bring the technology down to PCs. But competition is brutal in the 3D market, and although the company's products have looked good on paper, commercial success hasn't materialized.

"There are so many other people doing this and not making any money," noted Peter Glaskowsky, an analyst with MicroDesign Resources, who estimated that at least ten companies currently compete in the high-end graphics space while more than 30 companies compete in 3D. Raycer, he added, has not actually released products to date.

However Glaskowsky, among others, was somewhat mystified by the purchase. Apple likely does not have ambitions to get into the graphics chip market, one of the most overcrowded fields in high technology.

Further, if Apple wanted to get into the integrated chipset or processor market, it conceivably would be easier to license technology or codevelop products with its graphics partner ATI Technologies. Apple currently gets most of its 3D graphics chips from this Canadian company, which is the lead supplier in the PC market. Along with making standalone graphics chips, ATI has launched into the market for integrated chipsets.

"It baffles me a little bit, because they could get some other company to do their 3D work for them," said Glaskowsky.

Peddie concurred to a certain degree. Apple could use the intellectual property to create a high-end integrated chipset or even come out with router technology. However, the likelihood of seeing a chipset appears to be slim.

"Apple's appeal is the design team, whose leader has direct experience with MIPS and IBM PowerPC processors," he said. "If the product doesn't see the light of day it will make the acquisition price the highest headhunting fee ever paid."

Nonetheless, Lou Mazzuchelli, an analyst with Gerard, Klauer Mattison, said Apple lately has launched on a strategy to increase its outside investing. The company's investment in Web broadcaster Akamai, for instance, has exploded with that company's torrid IPO.

The company seems to be interested in making small acquisitions. "The appetite is to do smaller ones," Mazzuchelli said.