Supplier's Engineers Brought In-House -- WSJ
October 12 2018 - 3:02AM
Dow Jones News
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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