I remember a few years ago when Apple announced that they would transition from the IBM PowerPC to Intel Core 2 processors. This was a major strategic shift for Apple and based on the quarterly earnings reports since the decision it has proven to be brilliant. However, during the same week that Apple announced great fiscal second quarter 2008 earnings (51% increase in Mac sales year to year in the last quarter) they also announced that they were acquiring PA Semi. PA Semi was founded by Dan Dobberpuhl, the lead designer of the DEC Alpha series of processors. P.A. Semi is a privately held company that designs power-efficient processors.
I wonder what this $278 million investment means for Intel. Was Intel caught off guard by Apple’s decision? Does this threaten Intel’s chances to win an iPhone design with their new Centrino Atom processor? Does this mean Apple is going to create it’s own microprocessors for Mac and iPhone?
This Apple-Intel relationship makes them one of the the Silicon Valley’s oddest couple. Intel, innovator of the x86 family of microprocessors, helped horizontalize the PC industry by embracing open architecture, open standards, and teamed up with Microsoft to create the 800 pound gorilla called Wintel. Meanwhile Apple, creator of the Apple II, Macintosh, iPod, and iPhone has always remained closed architecture, proprietary standards, and listened to the beat of a different drum. But markets and business conditions have changed. Both realized the need for each other. Apple Macs were ingeniously designed but were performance challenged because of IBM’s lack of investment in the PowerPC. IBM was in the midst of changing to a services business model. Apple needed a supplier who had a compelling technology road map. Intel needed Apple because they needed new growth outside of the Wintel box. Apple gained a capable supplier and Intel was now associated with an iconic brand. This relationship has been a win-win for both. So why does Apple want to undermine this relationship?
I, like many others, can only guess why Apple bought PA Semi but I doubt it’s because they want to push Intel away. PA Semi doesn’t currently make a competitive product to what Intel currently offers. Apple needs Intel’s technology and manufacturing excellence if they want to produce leading edge products in high volume. It would be very costly to design and develop their own proprietary chips and would move them away from their core competencies in product design and ease of use. More importantly, it would alienate a great supplier relationship with Intel. My guess is that PA Semi was acquired to create some unique intellectual property for Apple that can be used to differentiate their products, not replace existing supplier. I might speculate further that the IP created by PA Semi will work with the new Intel Atom microprocessor in such a way that it will be very difficult for an Apple competitor to copycat. Whatever the real strategic intent, Apple is thinking of something brilliant and the acquisition of PA Semi is only one of many tactical moves in a larger strategic plan. I can hardly wait to see what unfolds.
Do you disagree with me? Why do you think Apple bought PA Semi? Do you think Intel has a shot at winning an iPhone design?
