SAN JOSE, Calif. The U.S. Department of Defense is reviewing Apple Inc.'s acquisition of embedded PowerPC designer PA Semi Inc. The acquisition put into jeopardy the future for the startup's processor which reportedly has been designed into a wide variety of military programs.
"The [PA Semi] 1682 is a very important and unique component required to meet performance requirements on a wide variety of defense applications," said an investigator working in the industrial policy unit for the Deputy Under Secretary of Defense.
"The Department of Defense had extensive discussions with various prime
contractors and subcontractors on the matter," the investigator continued. "We discussed our findings with the FTC and Apple. The issue is still a matter under discussion," he said in an email exchange.
A spokesman for Apple had no comment on the on-going talks with DoD except to reiterate the company's original position when word of the deal was first tipped on Forbes.com. "From time to time Apple buys smaller technology companies and we don't comment on our purpose or plans for them," the spokesman said.
A source in the pre-merger department at the Federal Trade Commission also refused to comment on the case.
Apple scooped up PA Semi for a reported $278 million in mid-April without saying a word to investors or even PA Semi's customers about what it has in mind for the low-power-processor startup. At the time, analysts speculated Apple was trying to quickly bolster its silicon expertise at a time of hyper growth.
PA Semi originally hoped to snag design wins for its low power PowerPC CPUs in Apple notebooks, a fact that may have lead to a report that Apple was an investor in the startup. But when Apple shifted to the x86, PA Semi focused its energies on the embedded market, a highly fragmented collection of many low volume markets including military applications.
Apple is not likely to use PA Semi to make a broad shift back to the PowerPC, given the difficulty of quickly supporting the company's high volume requirements. But some observers suggested having a PowerPC capability in house would make an excellent bargaining chip for Apple in regular negotiations with its main vendor, Intel Corp.
PA Semi's customers said the dual-core chip's unique capability of running at 2 GHz while consuming just 15 watts had won a wide variety of design wins in DoD programs in an unusually short time. Cards using the chip delivered far greater performance than competing products while shaving power consumption by up to 30 percent.
One source said PA Semi's PWRficient processor is designed into DOD programs in every major branch of the armed services.
On April 21, PA Semi informed its customers it was being acquired and could no longer guarantee supplies of its chips. The startup said the acquiring company was not interested in its products or road map but had purchased the 150-person company for its intellectual property and talent. PA Semi did not identify Apple but said the acquiring company might be willing to supply the chips on an end-of-life basis, if it could successfully transfer a third-party license to the technology.
The license in question is probably a PowerPC architectural license PA Semi has with IBM Corp. that lets the startup design its own PowerPC chips from scratch. No one from IBM was immediately available for comment.
PA Semi's chief executive and founder Dan Dobberpuhl reportedly scheduled a conference call in May with customers. However sources at PA Semi and the customer companies refused to comment on the call, except to suggest the situation has not yet been resolved.
Kent Dahlgren, CEO of bridging IP specialist Praesum Communications, said his company had worked with PA Semi to develop FPGA-based bridging solutions between RapidIO and other interfaces. Dahlgren said several designs in military and wireless-infrastructure markets had been canceled within a few hours of the PA Semi acquisition news.
"Even if the Defense Department blocks the deal, the circle of trust between PA Semi and its customers is gone," Dahlgren said in an April interview, adding that several contracts involving military OEMs were now in jeopardy.