Apple to buy part of supplier Dialog’s business in $600 million deal

SAN FRANCISCO/FRANKFURT (Reuters) – Apple Inc is to buy part of Dialog Semiconductor Plc’s business in a $600 million deal, expanding the iPhone maker’s chip operations in Europe and securing the German-listed company’s role as a supplier to the U.S. tech group.

A customer stands underneath an illuminated Apple logo as he looks out the window of the Apple store located in central Sydney, Australia, May 28, 2018. REUTERS/David Gray

Dialog’s shares rose by 34 percent in Frankfurt early on Thursday as the deal settles questions about future relations between Apple and Dialog, whose stock tumbled earlier this year when it said Apple planned to use chips from another supplier.

The acquisition is unusual for Apple, which rarely does such deals, and is larger than previous transactions. Apple bought Israel’s PrimeSense, creator of the facial recognition application used to unlock newer iPhones, for about $350 million in 2013.

Since the first iPhones a decade ago, Apple has used Dialog power-management chips to manage their battery life. Under the deal, Apple is buying patents, a team of about 300 engineers, most of whom already worked on chips for Apple devices, and Dialog offices in Britain, Italy and Germany.

Dialog said its 2018 revenue would not be affected and it would continue shipments of existing main power management integrated circuits (PMICs) to Apple. It expects to sell current and future generations of so-called sub-PMICs to Apple.

“We are not selling our PMIC business,” Chief Executive Jalal Bagherli told analysts.

After the deal, Dialog expects Apple to account for 35-40 percent of its total revenues in 2022. That is down from around 75 percent in the current year. Headcount will fall to 1,800.

The Anglo-German chipmaker also said it would begin a share buyback program for up to 10 percent of its stock following its next quarterly trading update.

Other chip designers in Europe have struggled to manage their relationship with Apple due to its sheer scale. Britain’s Imagination Technologies ended up being sold to a Chinese-backed fund last year after losing Apple as a client.

Dialog semiconductor logo is pictured at a company building in Germering near Munich, Germany August 15, 2016. REUTERS/Michaela Rehle

Shares in Austria’s AMS, which competes with Dialog in areas such as power-management chips, fell by 3.8 percent.

EUROPE PUSH

Half of the deal’s value, or about $300 million, is cash for the Dialog engineers and offices and the other $300 million is pre-payment to Dialog for supplying chips over the next three years, the companies said.

Dialog said it would continue to deliver chips to other customers, focusing on the automotive and internet-of-things markets, among others.

It forecast that its sub-PMIC business would achieve compound annual growth rates of 30-35 percent between 2018 and 2022. Its AMS, Connectivity and Automotive & Industrial business would grow at a 10-15 percent rate.

The deal represents an expansion of Apple’s chip design operations, which kicked into high gear in 2010 when the company released its first custom processor for the iPad and iPhone.

Apple is buying about 16 percent of Dialog’s workforce. Apple said these employees would stay in Europe and would report to Johny Srouji, the company’s senior vice president of hardware technologies who oversees Apple’s chip design efforts.

“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,” Srouji said. Apple has added around 20,000 employees in Europe since 2000. It already has a chip design centers in Munich, Germany, where it employs 1,000 staff, and St Albans, Britain. The deal will give Apple four more from Dialog, in Livorno in Italy, Swindon in Britain, and Nabern and Neuaubing in Germany.

The transaction is expected to close in the first half of 2019, subject to customary closings and regulator approvals, Dialog said. It expects savings of $35 million in annual operational expenses from the deal, but declined to give more detail on its financial impact ahead of an investor presentation on Nov. 1.

Dialog said Qatalyst Partners was acting as financial adviser and Linklaters was acting as its legal counsel.

Editing by Riham Alkousaa, Edmund Blair and Jane Merriman

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