Apple gets critical iPhone technology in $600 million Dialog deal
SAN FRANCISCO (Reuters) - Apple Inc is taking control over the power-management technology at the heart of its iPhones in a $600 million deal with Dialog Semiconductor that also secures the German-listed company’s role as a supplier to the US tech giant.
The agreement to license technology and take on people from the Anglo-German chip designer is not only unusual, but also the largest of its kind by Apple, whose last sizeable acquisition was the $350 million purchase of Face ID creator PrimeSense in 2013.
Dialog shares surged as much as 34 percent on Thursday, their most since 2002, as the deal bought the company time to reduce its dependence on Apple - which it expects to account for three-quarters of this year’s sales.
Dialog’s shares had tumbled earlier this year when it said Apple planned to use chips from another supplier.
Dialog Chief Executive Jalal Bagherli told Reuters he could now lead a “managed, smooth” transformation of the business as Dialog seeks new opportunities in areas such as the Internet of Things that includes connected devices like home speakers, fitness trackers or smart watches.
LONG-STANDING RELATIONSHIP
Since the first iPhones a decade ago, Apple has used Dialog power-management chips to extend their battery life. Under the deal, Apple is buying patents, taking on a 300-strong engineering team, most of whom already worked on chips for Apple devices, and Dialog offices in Britain, Italy and Germany.
Dialog said its 2018 revenue would not be affected and it would continue shipments of existing main power management integrated circuits (PMICs) to Apple. It expects to sell current and future generations of so-called sub-PMICs to Apple.
Bagherli said that Apple increasingly viewed main PMICs, which are central to the operation of its devices, as a strategic element that it wanted to control directly. This was not the case for sub-PMICs that manage features such as on-board cameras, he told Reuters.
After the deal, Dialog expects Apple to account for 35-40 percent of its total revenues in 2022. That is down from around 75 percent in the current year. Headcount will fall to 1,800.
The chipmaker also said it would begin a share buyback program for up to 10 percent of its stock following its next quarterly trading update. The $600 million windfall will add to Dialog’s already-healthy net cash position of $525 million, analysts said.
Other chip designers in Europe have struggled to manage their relationship with Apple due to its sheer scale. Britain’s Imagination Technologies ended up being sold to a Chinese-backed fund last year after losing Apple as a client.
“Dialog has bought itself much more than just time,” said Karsten Iltgen, an analyst at Bankhaus Lampe, which rates the stock ‘buy’. “Its Apple business has been clearly defined and put on a sound long-term footing.”