Reuters - Apple buying microchip designer P.A. Semi

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Apple buying microchip designer P.A. Semi

Wednesday, Apr 23, 2008 6:51PM UTC

By Scott Hillis

SAN FRANCISCO (Reuters) - Apple Inc <AAPL.O> is buying P.A. Semi, a designer of low-power microchips, in a move that could bolster its ability to customize key parts for its iPhone, iPod and Macintosh product lines.

The deal, first reported on the Forbes magazine Web site, was confirmed on Wednesday by Apple spokesman Steve Dowling, who declined to comment on financial terms or give details.

"Apple buys smaller technology companies from time to time, and we generally don't comment on their purpose or plans," Dowling said.

Forbes said the transaction was valued at $278 million in cash. Officials at Santa Clara, California-based P.A. Semi were not immediately available to comment.

Apple, based nearby in Cupertino, already employs many semiconductor experts who work closely with partners to customize chips to make its products stand apart, said Tim Bajarin, head of Creative Strategies, a consultancy.

"Let's be clear. This has nothing to do with Apple wanting to get into semiconductors. This is purely the need to bulk up their system design teams to enhance their ability to work with third-party vendors," Bajarin said.

Key Apple partners include Intel Corp <INTC.O>, which supplies the processors for Mac computers, and South Korea's Samsung Electronics Co Ltd <005930.KS>, which makes the iPhone processor.

But having a larger pool of chip expertise could come in handy if Apple contemplates moving into new product areas.

"You can't count out the fact that if you have this level of capability, you could expand into potentially other types of products," Bajarin said. "It gives them a lot more flexibility to be innovative in the future."

P.A. Semi, which launched its first products in late 2005, has a family of chips based on the Power architecture from IBM <IBM.N> but that use far less electricity than other designs.

P.A. Semi said its chips could be used in everything from printers to video game systems to supercomputers. It is a "fabless" chip company, meaning it uses contract manufacturers and does not own its own production facilities.

Nathan Brookwood, principal analyst at Insight 64, said P.A. Semi's existing chips were targeted at high-performance computers and would not be suitable for mobile devices.

"Maybe Apple just needed the people, but out of a couple hundred people at P.A. Semi, maybe 100 would have skills Apple could deploy in other areas. That's $2.7 million per person, which is a very high headhunter fee."

Apple shares rose 1.8 percent to $163 in afternoon trading on Nasdaq, ahead of the company's quarterly earnings announcement after the market close.

(Additional reporting Yinka Adegoke in New York; Editing by Lisa Von Ahn and Braden Reddall)