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Apple's peculiar purchase-- the six Ps of PA Semi

Glaskowsky tries to make some sense of Apple's purchase of chip-design firm PA Semi.

Earlier this week, Apple bought a Silicon Valley chip-design firm named PA Semi for a reported price of $278 million.

PA Semi's PWRficient logo

Apple will get four things for sure:

  • People-- PA Semi has a medium-size team that knows how to work together and produce chips.
  • Processes-- PA Semi has design tools and procedures that can be used to design new chips.
  • Patents-- PA Semi did some unique innovative design work for its chips, and there must be some interesting patents on this work.
  • A product-- the PWRficient 1682M, which has found a few design wins in military electronics and other systems.

And perhaps a couple more:

  • A PowerPC architectural license-- which would allow Apple to make PowerPC processors
  • Protection against litigation-- if Apple made promises to PA Semi or its investors, PA Semi's inevitable failure as a standalone company might have resulted in legal action against Apple.

Okay, let's take these one at a time.

PA Semi's people are chip designers. Apple is not a chip company. It used to make chipsets for its PowerPC-based systems, but now that Apple is getting processors and chipsets from Intel, it has much less need for chip designers.

On top of that, PA Semi's people are designers of high-complexity, medium-power microprocessors with unusual custom I/O interfaces. These skills are even less useful to Apple, at least for its current product line.

The same reasoning applies to PA Semi's design processes. They just aren't what Apple needs right now.

Whatever patents PA Semi might have (I haven't looked into this) are probably not very useful to Apple, since it doesn't make processors and doesn't need this kind of legal leverage over its processor vendors. If the deal was primarily about patents, the purchase price would be completely unreasonable; no untested patent portfolio is worth anywhere near $278 million.

PA Semi's one product isn't selling in high volume and never will. I assume the company was working on future products but there's no reason to assume these would be any more successful.

The PowerPC license would only be valuable to Apple if it planned to make PowerPC processors. It has no particular reason to do that, and we don't even know if PA Semi's license is transferable to Apple.

Apple just doesn't need PowerPC chips. It moved the Mac line away from PowerPC. Intel is doing a reasonably good job of providing both low-power and high-performance x86 chips. PowerPC chips-- especially those like PA Semi's-- aren't a good fit in cellphones like the iPhone.

And that leaves us with litigation protection. Apple knows just what's at stake here. Apple invested in a previous PowerPC design firm, Exponential Technologies, and after Exponential went under, it slapped Apple with a lawsuit alleging that Apple deliberately sabotaged its efforts to sell chips to both Apple and Mac clone makers.

Could PA Semi possibly have a basis for a complaint against Apple? To me, this is nigh-impossible. How could Apple have made the same mistake with the Exponential situation so fresh in its institutional memory? The most generous thing I can say about this theory is that it isn't impossible.

But all of this leaves me with three choices:

  • Apple is getting into the microprocessor business. That would be crazy.
  • Apple made unwise promises to PA Semi. That's also crazy, but maybe slightly less crazy since Apple's done it before.
  • I'm missing something. I have a pretty good idea what kinds of value are generated by a startup chip company... but it's possible.

And I'll throw in one bonus possibility raised by a friend of mine:

  • Steve Jobs felt guilty that PA Semi didn't work out. No comment.