November 20, 2018

A $600 Million Deal with UK-Based Firm Secures Critical iPhone Technology for Apple

Dialog

Apple has inked a $600 million deal to take control over Dialog semiconductor—the power management company at hear of its iPhones. The deal would see Apple acquire certain assets, and over 300 staff members of Dialog. $300 million will be paid upfront for the deal while the remaining amount would be payment for product delivery over the next few years. Here is more on the deal that secured critical iPhone technology for Apple!

In November of 2017, rumors started to surface that Apple was considering developing its own power management chip. Only a month later, the CEO of Dialog Semiconductor confirmed that Apple was developing its own chip to replace theirs. In May this year, the company revealed that Apple had in fact slashed orders by thirty percent and on October 11, Dialog announced that it had reached an agreement with Apple on the licensing of certain assets or power management technologies and on the transfer of more than three hundred of the company engineers and staff.

While it depends on how quickly approval is given by the supervising authority, the above transaction is expected to be completed in the first half of the new year. According to a Reuters report, the acquisition is rare one for Apple, as the company does generally do such massive transactions. The only transaction of such scale in recent times by Apple that the media agency could recall was the company’s $359 million purchase in 2013 of PrimeSense—the Israeli manufacturer of facial recognition application that unlocks newer iPhones.

John Srouji—the SVP of Hardware technologies at Apple, had the following to say about the acquisition:

“Dialog has deep expertise in chip development, and we are thrilled to have this talented group of engineers who’ve long supported our products now working directly for Apple. 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.”[1]

After the news of Apple’s acquisition of its power-management technologies and staff broke out, Dialog Semiconductor saw a 34% increase in its shares in Frankfurt. This was because the deal settled the concerns surrounding the future relations between Apple and Dialog.

The $600 Million Adds a New Dimension to the Apple-Dialog Relationship

Since the launch of the first iPhones, Apple has managed the battery life in them with the power-management chips of Dialog. However, the recent $600 million deal with Dialog will add a new dimension to Apple’s relationship with the company. The deal will see Apple buy Dialog’s patents, and about three hundred staff which includes many engineers who have already worked on chips for iPhones. The deal will also secure the offices of Dialog in Italy, Germany, and Britain for Apple.

Despite all this, Dialog remains positive that its revenues in the last part of 2018 would not be affected as it would continue to provide Apple main power management integrated circuits (PMICs). The company also expects Apple to buy current and future generations of sub-PMICs from it.Dialog should consider this a real achievement as most of the other chip designers of apple have struggled to maintain their relationship with the company.Jalal Bagherli—the CEO of Dialog, was confident that the deal would strengthen his company’s long-standing relationship with Apple and he said the following:

“This transaction reaffirms our long-standing relationship with Apple, and demonstrates the value of the strong business and technologies we have built at Dialog”[2]

For most—or three-quarter of its revenue, Dialog relies on its partnership with Apple to supply chips for charging and managing power in iPhones. After the deal is completed in the first half of 2019, Dialog estimates that Apple will account for thirty-five to forty percent of its total revenues in 2022. This is seventy-five percent less than the figure in the current year.

Dialog also expects its headcount to decrease to 1,800. Additionally, Bagherli revealed that after its next quarterly training update, his company would start a share buyback program for up to ten percent of its stock. According to analysts, the already-healthy net cash position of Dialog which is worth $525 million would be strengthened by the $600 million deal with Apple.

For years, Apple has developed its own processors, however, it is only recently that the company has stepped up its efforts to design components such as Bluetooth, graphics, and other phone-related chips in-house. While this creates new risks and is expensive, it can help Apple to maintain leverage over suppliers as several acquisitions have reduced the number of chipmakers it works with.

iPhone 8 and iPhone X were the first iPhones to feature Apple’s own graphics cards, or GPUs. And, this trend has continued with the recently released XS and Apple Watch Series 4.  Currently, Imagination Technologies Group Plc—a U.K. chip designer provides chip technology to Apple for products such as Apple TV, and iPad. However, it is expected that Apple would eventually transition to its own graphics processors for all its iOS-based products, which includes Apple TV and iPad.  However, it is expected that Apple would eventually transition to its own graphics processors for all its iOS-based products, which includes Apple TV and iPad.

As for Dialog, the company expects to turn its focus to computing, automotive, mobile, and the Internet of Things (IoT) after the deal with Apple is completed. The $300 million that Apple has paid upfront as part of the deal would see the technology provider purchase lab tools and patents, take over a staff of three hundred, and acquire energy-administration know-how.

Beating the $350 million acquisition of PrimeSense, the $600 million deal with Dialog is the ‘largest of its kind’ by Apple.

[1]https://techcrunch.com/2018/10/10/apple-is-paying-300m-in-cash-to-buy-a-part-of-dialog-semiconductor-and-expand-its-chipmaking-in-europe/

[2]https://www.cnbc.com/2018/10/11/dialog-semiconductor-signs-600-million-licensing-deal-with-apple.html

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