Apple Swoops Up Engineers From Key Supplier as It Bolsters In-House Chip Design -- 2nd Update

By Anthony Shevlin, Tripp Mickle and Daphne Zhang

Apple Inc. has agreed to bring in house more than 300 engineers from one of its key suppliers, Europe-based Dialog Semiconductor PLC -- part of a $600 million deal that boosts the smartphone giant's chip-design operations.

Under the deal, Apple will transfer to its workforce a group of Dialog engineers who have already been supporting Apple's chip development, Dialog said Thursday. The engineers represent about 16% of Dialog's total workforce.

Apple will pay Dialog $300 million in cash and prepay $300 million for Dialog products to be delivered over the next three years, the European company said. As part of the deal, Apple will also assume control of certain Dialog facilities in Italy, Germany and the U.K.

The Dialog deal is one of Apple's largest in terms of acquiring new staff. Buying up assets and key staff from startups and suppliers -- or acquiring whole companies to bring supply lines, or promising new technology, in house -- isn't unusual in the tech industry.

Still, the Dialog deal stands out. Apple's largest-ever acquisition -- a $3 billion deal in 2014 for Beats Electronics -- included the addition of about 700 people.

The talent acquisition comes as the performance of the processors Apple is designing for its iPhones are outpacing technology advances related to the batteries commonly used in iPhones, according to chip experts. The rate of processor development has made preserving power more critical in the devices.

Apple has been using Dialog chips to manage the battery life of its iPhones for years. It began adding its own power-management semiconductor experts more recently and has increasingly designed chips that work alongside Dialog's components to optimize power, according to a person familiar with the matter.

The iPhone maker's push into power management chip design has cut into Dialog's business. The company counted on Apple for about 70% to 80% of its revenue, or about $3 an iPhone, until Apple began developing some of its own power-management chips, according to UBS. Dialog's shares tumbled earlier this year when the company disclosed Apple was adding a second power-management chip supplier.

As part of Thursday's deal Dialog said it had been given new contracts for the development and supply of power-management, audio subsystems, charging and other mixed-signal integrated circuits for Apple's products. It expects to start generating revenue from those contracts next year.

The news came as a relief to investors, with Dialog's shares up more than 25% in afternoon trading Thursday.

"There has been a lot of speculation over our relationship with Apple," Dialog Chief Executive Jalal Bagherli said in an interview. "This hasn't been done with any other suppliers in terms of Apple investing and licensing the technology and also doing prepay at the same time. It is sending a very strong signal of partnership to the market."

Mr. Bagherli said Dialog has chips in almost everything Apple does and that the company would now seek to win more work on peripheral products.

"Our relationship with Dialog goes all the way back to the early iPhones, and we look forward to continuing this longstanding relationship with them," said Johny Srouji, Apple's senior vice president of hardware technologies.

Dialog plans to use the proceeds from the Apple deal to accelerate investments in growth opportunities, including mergers and acquisitions. It expects the transaction to be concluded in the first half of 2019.

"In some way this is lifesaving for Dialog because it strongly decreases all the uncertainty in the market for Dialog stock," said Robin Brass, an analyst at Hauck & Aufhäuser Investment Banking. "No one knew what was going to happen with Apple."

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

October 11, 2018 11:27 ET (15:27 GMT)

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