Apple Buys a Semiconductor Company

Written by Monica Savaglia
Posted October 12, 2018

Earlier this year, Apple became the second company this year to hit a $1 trillion valuation. So, it must be doing something right to hit that type of milestone.

But Apple needs to keep it up. And for a company to continue increasing its valuation, it needs to make some important decisions to build its business model as efficiently as possible. And that's what Apple is doing.

Earlier this week, Apple announced that it would bring more than 300 engineers in-house from one of its essential suppliers: Europe-based Dialog Semiconductor.

This wasn't cheap, either. It's a $600 million deal that will push Apple's chip-design operation into a whole new area. And it'll benefit Apple in the long run.

Apple will pay Dialog $300 million in cash. And it'll prepay $300 million for Dialog products to be delivered over three years' time. This is the company's biggest acquisition deal to date. And it will benefit Apple for years to come. The last acquisition the company made was a $3 billion deal in 2014 for Beats Electronics. It included acquiring 700 Beats Electronics employees. This wasn't only the most recent acquisition Apple made. It was also its first.

So, four years later, Apple is willing to shed $600 million to acquire both Dialog's company and its employees.

Part of this deal includes gaining control of some of Dialog's facilities in Italy, Germany, and the U.K. This deal is normal within the tech industry. Apple needed to make some big purchases to grow as a business...

Before the $600 Million Deal

Both companies have been working alongside each other for a while. Dialog's chips have been managing the battery life of Apple's iPhones for years. But Apple's been working to add its own power-management semiconductor experts. And they've started designing chips to work with Dialog's components and to optimize power.

Apple's emergence in this new field of power-management chip design has taken a toll on Dialog's businesses. Dialog depended on Apple for 70% to 80% of its revenue. And that comes out to around $3 for every iPhone produced. Earlier this year, Dialog saw its shares fall when Apple announced that it would take on a second power-management chip supplier.

Apple's senior vice president of hardware technologies, Johny Srouji, said:

Our relationship with Dialog goes all the way back to the early iPhones, and we look forward to continuing this long-standing relationship with them.

And this isn't a one-sided deal. Making this deal with Apple may have rescued Dialog from future turmoil.

Robin Brass, an analyst at Hauck & Aufhäuser Investment Banking, said:

In some way this is lifesaving for Dialog because it strongly decreases all the uncertainty in the market for Dialog stock.

With that said, this $600 million deal is attractive for both companies involved. And both parties will benefit from whatever comes after.

As the tech advances, Dialog's engineers and facilities will help Apple in its quest to optimize the chips used in its smartphones. And Dialog will gain some money that it might not have been able to earn, depending on how the market shifted.

Until next time,

Monica Savaglia Signature Park Avenue Digest

Monica Savaglia

Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.

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