Dialog Semiconductor has struck a $600m deal to hand assets and employees to Apple, drawing a line under months of uncertainty about the Anglo-German chipmaker’s future relationship with its biggest customer.
Apple will pay $300m in cash upfront to license power management technologies, buy assets including lab equipment and patents, and acquire 16 per cent of Dialog’s workforce — some 300 engineers — in a move that will give the smartphone maker control over one of its key components.
Jalal Bagherli, chief executive of Dialog, said the deal was a “significant step” in reducing the company’s reliance on Apple, which currently accounts for three-quarters of its revenues. The chipmaker has estimated that revenues from Apple will fall to as little as a third by 2022.
Mr Bagherli said the deal provided “clarity” that would “minimise disruption to our business and employees”.
Apple has also signed up to new contracts to buy chips from Dialog and will pay the chipmaker $300m for products that will be delivered over the next three years.
Shares in Dialog jumped 25 per cent in morning trading in Frankfurt on Thursday, after the deal was announced, and closed up 27 per cent.
Dialog’s components will continue to be used in Apple’s iPhones, iPads and Watches, as well as in as-yet unreleased products, for “many years to come”, Mr Bagherli said. He added that the company “expect[ed] to be winning another bunch of contracts from Apple soon”.
Dialog has supplied Apple’s power management chips for over a decade. But last year the chipmaker’s shares were hit by concerns that Apple would begin to develop its own chips as it looks to cut its reliance on suppliers. The company has lost more than half its market value over the past year.
Imagination Technologies faced a similar fate when Apple ended its supplier relationship with the UK chip designer last year. The business was sold to China-backed private equity firm Canyon Bridge last year after its share price collapsed.
Unlike most Android smartphone makers, which rely on the likes of Qualcomm for their core processors, Apple has developed extensive silicon expertise, giving it a powerful differentiator in the increasingly commoditised mobile market. Power management is becoming increasingly important as Apple moves into smaller and more personal products, from its AirPod wireless earphones to its forthcoming smart glasses.
Neil Shah, analyst at Counterpoint Research, said that Apple’s move to develop its own power management chips might have robbed Dialog of billions of dollars in revenues over the next few years.
“This is a common theme with Apple suppliers who are stretched fully to allocate supply to Apple and become overdependent on Apple and have no way to diversify,” he said.
The deal announced on Thursday allows Dialog to “salvage” some of its other business with Apple, rather than losing it as a customer entirely, he added.
“After seeing what has happened to Imagination . . . the companies would rather exit with some leverage and reward rather than nothing,” Mr Shah said. “So it is both a boon and bane to be an Apple supplier.”
Dialog has attempted to shift its focus to supplying chips to internet of things manufacturers, car companies and drum up demand from other customers. But the deal with Apple will see it hand over patents that have formed part of the company’s core business over the past decade.
Thursday’s deal is not the first time a smartphone maker has moved to acquire workers and technology from a supplier. In 2012, Samsung bought the mobile and location technology business of Cambridge-based CSR, acquiring more than 300 workers in the process.
Mr Bagherli said the Dialog employees who would join Apple were product development engineers, rather than its core intellectual property developers, who will remain at the chipmaker. Dialog’s licensing agreement with Apple will still allow it to create power-management technology for other smartphone makers, he added.
Apple will take on Dialog facilities in Livorno, Italy, Swindon in the UK and Nabern and Neuaubing in Germany.
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