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Apple buys chunk of chipmaker that's key to iPhone's innards

The $600 million deal for part of power management chipmaker Dialog Semiconductor also gives Apple a firmer foothold in Europe.

Apple is paying $600 million to buy much of UK chip designer Dialog Semiconductor.
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Apple made a deal to buy part of Dialog Semiconductor for $600 million, allowing it to license power management technology and acquire more than 300 workers.

Cupertino, California-based Apple will pay the UK chip designer $300 million in cash initially for certain assets, and an additional $300 million for product delivery over the next three years. The deal is expected to close in the first half of 2019.

Dialog relies on Apple for about 75 percent of its revenue, mostly through the supply of chips for charging and power management in smartphones. Its processors have been used in iPhones since the first model in 2007. Power management chips are important for making sure an iPhone charges correctly and doesn't consume too much energy. They're some of the priciest, and most vital, components after the main application processors that act as the brains of a device, modems and memory chips.

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"Our relationship with Dialog goes all the way back to the early iPhones, and we look forward to continuing this long-standing relationship with them," Johny Srouji, Apple's senior vice president of hardware technologies, said in a statement.

It's Apple's biggest acquisition ever in terms of head count, TechCrunch noted, and represents around 16 percent of Dialog's total workforce. Those employees have worked closely with Apple for many years, supporting its chip development, both companies said.

Dialog CEO Jalal Bagherli, meanwhile, said in a statement that the deal reaffirms the longtime relationship and "demonstrates the value of the strong business and technologies we have built at Dialog."

Making its own chips

Apple, which has designed the brains for its iPhones and iPads for years, has made moves to make even more of its components on its own. The Apple-designed W1 Bluetooth chip pairs the company's AirPods to an iPhone, while the A11 Bionic processor boosts the iPhone's artificial intelligence capabilities. Apple is believed to be working on a chip for Mac laptops that would take on the functionality handled now by Intel chips. Apple is also reportedly working on its own graphics processors. 

The move to make more chips on its own reduces Apple's reliance on suppliers and helps it control costs. By designing its own processors, Apple also has more say over features and can set its own timeline. And it can find ways to further differentiate itself from other smartphone makers. Samsung and Huawei are two other companies that design their own chips, as well as their phones

A year ago, Apple was rumored to be making its own power management chips, something that hit Dialog's shares hard. The iPhone XS Max, which entered the market last month, uses power management technology developed by Apple, according to a teardown by iFixit

"We believe power management capabilities will be critical to future product development, particularly as Apple adds increasing functionality, which tends to correlate with higher power consumption, in opposition to consumers' desire for higher battery-life," JPMorgan analyst Samik Chatterjee noted Thursday. He added that Apple's acquisition of part of Dialog "is a natural fit as it enables increased technology differentiation and agility for future generations of products."

Apple will take over Dialog facilities in Livorno, Italy; in Swindon, England; and in Nabern and Neuaubing, Germany, strengthening Apple's foothold in Europe. It's added around 20,000 employees in Europe since 2000, and already had chip design centers in Munich and in St. Albans, England, Reuters reported.

Dialog's shares jumped by up to 34 percent in trading in Frankfurt on Thursday, the most since October 2002, according to Bloomberg. They closed up 25 percent at €20.79. Apple shares were little changed in the US at $216.26.

Apple has been on a roll with acquisitions over the past few years. That's included companies like streaming music and headphone maker Beats and song identification app Shazam. The Beats deal, for $3 billion, was Apple's biggest ever acquisition, and Apple reportedly paid $400 million for Shazam. Dialog now joins the small club of big Apple purchases; most of the California company's deals tend to be for much smaller amounts of money.

First published Oct. 11, 6:58 a.m. PT
Update, 11:35 a.m.: Includes additional background information, Dialog comment and analyst comment.

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