Friday, April 25, 2008

Apple Buys PA Semi—What Was That About?

Apple sent shock waves through the industry with its acquisition this week of PA Semi for a reported $278M. Does this mean that Intel—who had great hopes of seeing next-generation iPhones and iPods based on Atom—and Samsung, who make the iPhone’s ARM-based applications processor, are hosed? Basically, yes.

PA Semi’s PA6T-1682M is a 64-bit low power dual-core version of the PowerPC architecture that Apple used in its computers before switching to Intel. Capable of delivering 8,800 Dhrystone Mips while running at 2 GHz, this chip is clearly much better suited to server blades and high-end embedded applications than it is for portable designs. Apple coyly let on that it was acquiring the firm for its IP and design expertise and had no interest in producing chips, at least for the merchant market. That caused a chorus of cries from mil/aero contractors, who have been scooping up PA’s chips as fast as they could acquire them for a wide range of (presumably rack-mounted) applications. Some have reportedly been whinging to the Department of Defense (DOD), asking them to block the acquisition so that the processors will continue to be available.

Apple’s lawyers can probably deal with any DOD objections by licensing generic versions of PA’s design to silicon manufacturers. What Apple apparently has in mind here is getting tighter control of the hardware, not to mention importing the profits that Samsung and ARM have been enjoying to date. Steve Jobs has long stated that Apple’s winning edge is tight integration between hardware and software, and this acquisition will enable new levels of hardware/software co-design—not to mention a scaled-down version of PA’s current chip that will fit perfectly into Apple’s next-generation of products. I’m sure TMSC will welcome them with open arms.

What does this mean for the rest of the supply chain? Mostly angst. This hits Intel at a bad time; they need some big design wins for Atom, and the iPhone/iPod socket would have really launched the architecture. Intel is counting on Mobile Internet Devices (MIDs) as the Atom launch platform, but MIDs are barely beyond the concept stage, and it’s unclear that they’ll get any real traction. OTOH, sub-notebooks seem to be coming back, thanks to the Asus Eee PC 701 (currently based on a Celeron processor), and this is a market where Atom could take off. So don’t sell your Intel stock just yet. Same for ARM, who have the luxury of being ubiquitous in the embedded and portable space. Shed a tear for Samsung, however. PortalPlayer can feel your pain.

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