In its signature secretive fashion, Apple Inc. scooped up embedded PowerPC designer PA Semi Inc. for a reported $278 million last week without saying a word to investors or even PA Semi's customers about what it has in mind for the low-power-processor startup.
The industry was abuzz with speculation about Apple's silicon motives. All sides agreed it will probably take a good 18 months--a CPU development cycle--before an answer ships inside a new Apple product.
Meanwhile, the deal may draw the ire of the U.S. Department of Defense. PA Semi's PWRficient processor is designed into DOD programs in every major branch of the armed services, said one of the startup's customers, who expects Apple will end production of the part soon.
One of the few things that is clear is that Apple is on a tear. The day after Forbes.com broke the PA Semi story, Apple reported a historic high in sales for its March quarter, of $7.51 billion, up 43 percent over the like period a year ago. Quarterly profit hit $770 million.
Apple shipped 2.28 million Macs in the quarter, up 51 percent from a year earlier and more than three times the growth rate of its PC competitors. It also shipped 10.6 million iPods (up just 1 percent) and topped Wal-Mart as the largest U.S. music retailer (via iTunes). It sold 1.7 million iPhones in the quarter, and COO Tim Cook assured investors the company is on track to bring the total to 10 million for 2008.
Even at a reported $278 million--a sizable chunk of change--the PA Semi acquisition shapes up as small potatoes for an organization building out its infrastructure for growth.
"We're thrilled to have generated $4 billion in cash flow from operations in the first half of fiscal 2008, yielding an ending cash balance of $19.4 billion," said Peter Oppenheimer, Apple's CFO. He predicted revenue would be up 32 percent in the June quarter.
In a conference call with Wall Street analysts, Apple declined to discuss the PA Semi deal.
Richard Doherty, principal of market watcher Envisioneering Group (Seaford, N.Y.), said Apple needs to beef up its silicon expertise to keep pace with its growth and widen its technology edge over competitors such as Hewlett-Packard and Sony. With an in-house chip design team, Apple would not have to disclose as many details about its product plans to outside chip companies, Doherty said. In addition, products such as the Mac Mini, Apple TV and Mac Pro are all in need of a refreshing and could benefit from proprietary silicon to handle digital media.
"There are 100 flavors of video out there, and they want them all to look good on Apple products," Doherty said.
Apple has used off-the-shelf chips for its most recent products, including the Macbook Air, Apple TV and Time Capsule, said David Carey, president of Portelligent, a division of EE Times publisher TechInsights.
"Except for the iPhone, we haven't seen much evidence of Apple having much influence on IC design lately," said Carey. "One possibility is that Apple could use a crack internal processor design group as leverage over major suppliers such as Intel and Samsung." The latter company supplies the CPU for the iPhone and iPod Touch.