Dialog Semiconductor, the Anglo- German firm’s power- management technology has been bought by Apple Inc for its iPhone in a $600 million deal.
Apple’s last considerable acquisition was the $350 million purchase of Prime Sense’s Face ID in 2013, making this latest agreement to acquire patents and people from the German- listed company first of its kind for Apple considering its size.
Shares of Dialog hit its record- high since 2002 at 34% increase on Thursday much to do with the time it bought to reduce its dependence on Apple Inc that it expects to account for three- quarters of the current year’s sales. Earlier this year when Apple planned to buy chips from another supplier the shares of the Anglo- German chip designer had seen a fall.
With the deal materializing, Jalal Bagherli, Dialog’s Chief Executive said that he can now utilise new opportunities in areas such as the Internet of Things given the managed and smooth transformation.
The $600 million deal involves Apple buying patents, a 300- strong engineering team most of whom have already worked for Apple devices for the past 10 years where Apple has been using Dialog’s power- management chips to extent the battery life of phones. Additionally, Dialogs offices in Italy, Britain and Germany are also a part of the deal.
Sale of existing power management integrated circuits (PMICs) to Apple will continue not affecting the current sales according to Dialog. The current and future generations of so- called sub- PMICs will also be sold to Apple according to the Company’s expectations.
Since the main PMICs were pivotal for the operations of Apple’s devices, wanting to control them directly was a strategic call unlike in the case of sub- PMICs that manage features like on- board cameras; according to Bagherli.
Once the deal goes through, total revenues from Apple will fall to 35-40% in 2022 as against 75% currently along with the headcount falling to 1800.
A share buyback program is also in the loop for up to 10% of its stocks after its next quarterly trading update. The current net cash position of Dialog is at a healthy $525 million; according to analysts after the deal the company’s net cash position will get another boost.
Apple’s sheer scale has made it extremely challenging for other chip- designers to maintain an association with Apple. In case of Britain’s Imagination Technologies, after losing Apple as a client it had to be sold to a Chinese- backed fund in 2017.
Dialog on the other hand has secured its role as a supplier to the U.S. giant. According to Karsten Iltgen, an analyst at Bankhus Lampe, which rates stock ‘buy’; the deal has given Dialog enough time, defined its role with Apple and given it a long- term footing.
The deal’s amount is divided equally between cash payment for Dialog’s engineers and offices on one hand and the second half is an advance payment for three years of the chips that will be supplied to it by Dialog.
While dialog will continue to supply chips to other customers, its focus will be on internet-of-things and automotive markets.
Dialog’s forecast for its sub- PMIC business and AMS, Connectivity and Automotive & Industrial business is a compound annual growth rate of 30-35% between the period of 2018 and 2022 and growth of 10-15% respectively.
After 2010 when the company first released customer processor for its iPad and iPhone its chip design operations picked a high gear and this deal brings in more expansion for the same.
The 16% of Dialog’s workforce that Apple is about to buy will be working in Europe itself and report to Apple’s senior vice president of hardware technologies overseeing Apple’s chip design efforts, Johny Srouji.
Along with a long association with Dialog, Apple already has roughly 20,000 employees from the Europe since 2000. Apart from the four new chip design centers from Dialog including Livorno in Italy, Swindon in Britain, and Nebern and Neuaubing in Germany; Apple already had two centers in Munich, Germany with 1,000 staff members and St. Albans in Britain.
According to Dialog, the transaction is expected to close in the first half of 2019. It further stated that according to company’s estimates a total saving of $35 million in annual operations is expected from the deal. However, Dialog denied commenting further on financial impact details before an investor presentation on November1, this year.
Qatalyst Partners and Linklaters are its financial adviser and legal counsel respectively, as informed by the company