Apple Swoops Up Engineers From Key Supplier as It Bolsters In-House Chip Design -- 2nd Update
October 11 2018 - 10:42AM
Dow Jones News
By Anthony Shevlin, Tripp Mickle and Daphne Zhang
Apple Inc. has agreed to bring in house more than 300 engineers
from one of its key suppliers, Europe-based Dialog Semiconductor
PLC -- part of a $600 million deal that boosts the smartphone
giant's chip-design operations.
Under the deal, Apple will transfer to its workforce a group of
Dialog engineers who have already been supporting Apple's chip
development, Dialog said Thursday. The engineers represent about
16% of Dialog's total workforce.
Apple will pay Dialog $300 million in cash and prepay $300
million for Dialog products to be delivered over the next three
years, the European company said. As part of the deal, Apple will
also assume control of certain Dialog facilities in Italy, Germany
and the U.K.
The Dialog deal is one of Apple's largest in terms of acquiring
new staff. Buying up assets and key staff from startups and
suppliers -- or acquiring whole companies to bring supply lines, or
promising new technology, in house -- isn't unusual in the tech
industry.
Still, the Dialog deal stands out. Apple's largest-ever
acquisition -- a $3 billion deal in 2014 for Beats Electronics --
included the addition of about 700 people.
The talent acquisition comes as the performance of the
processors Apple is designing for its iPhones are outpacing
technology advances related to the batteries commonly used in
iPhones, according to chip experts. The rate of processor
development has made preserving power more critical in the
devices.
Apple has been using Dialog chips to manage the battery life of
its iPhones for years. It began adding its own power-management
semiconductor experts more recently and has increasingly designed
chips that work alongside Dialog's components to optimize power,
according to a person familiar with the matter.
The iPhone maker's push into power management chip design has
cut into Dialog's business. The company counted on Apple for about
70% to 80% of its revenue, or about $3 an iPhone, until Apple began
developing some of its own power-management chips, according to
UBS. Dialog's shares tumbled earlier this year when the company
disclosed Apple was adding a second power-management chip
supplier.
As part of Thursday's deal Dialog said it had been given new
contracts for the development and supply of power-management, audio
subsystems, charging and other mixed-signal integrated circuits for
Apple's products. It expects to start generating revenue from those
contracts next year.
The news came as a relief to investors, with Dialog's shares up
more than 25% in afternoon trading Thursday.
"There has been a lot of speculation over our relationship with
Apple," Dialog Chief Executive Jalal Bagherli said in an interview.
"This hasn't been done with any other suppliers in terms of Apple
investing and licensing the technology and also doing prepay at the
same time. It is sending a very strong signal of partnership to the
market."
Mr. Bagherli said Dialog has chips in almost everything Apple
does and that the company would now seek to win more work on
peripheral products.
"Our relationship with Dialog goes all the way back to the early
iPhones, and we look forward to continuing this longstanding
relationship with them," said Johny Srouji, Apple's senior vice
president of hardware technologies.
Dialog plans to use the proceeds from the Apple deal to
accelerate investments in growth opportunities, including mergers
and acquisitions. It expects the transaction to be concluded in the
first half of 2019.
"In some way this is lifesaving for Dialog because it strongly
decreases all the uncertainty in the market for Dialog stock," said
Robin Brass, an analyst at Hauck & Aufhäuser Investment
Banking. "No one knew what was going to happen with Apple."
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
October 11, 2018 11:27 ET (15:27 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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