AAPL Apple Inc

By Anthony Shevlin, Tripp Mickle and Daphne Zhang 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 12, 2018).

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

The transfer of what amounts to 16% of Dialog's total workforce involves a group of engineers who have already been supporting Apple's chip development, Dialog said Thursday.

Apple will pay Dialog $300 million in cash and prepay $300 million for Dialog products to be delivered over the next three years. As part of the deal, Apple will also assume control of certain Dialog facilities in Italy, Germany and the U.K. The company's headquarters are in the U.K., though the bulk of its revenue is generated in Germany.

Buying up assets and key personnel isn't unusual in the tech industry as a way to bring supply lines or promising new technology into the fold. Still, the Dialog deal stands out for Apple, whose largest-ever acquisition -- its $3 billion deal in 2014 for Beats Electronics -- entailed the addition of about 700 people.

Apple's talent acquisition comes at a time when the development of more powerful processors for the iPhone is outpacing advances in the device's battery.

Apple has been using Dialog chips to manage the battery life of its iPhones for years, but more recently has added its own semiconductor experts to design chips that work alongside Dialog's components to optimize power, according to a person familiar with the matter.

That in-house design initiative 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 that Apple also was adding a second power-management chip supplier. On Thursday, they rose 25% to EUR20.79 ($24.11) in Frankfurt trading.

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.

"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 supplies chips in almost everything Apple has to offer and that it 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 12, 2018 02:47 ET (06:47 GMT)

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