Apple has bought Silicon Valley based P.A. Semi, a processor design firm. At first sight it seems to not make too much sense to buy a processor design company and for P.A. Semi, which is late in its target markets, telecommunications and medical devices, just a great exit deal. Now the blog community speculates why Apple would do that. Common wisdom is that chip making is a pure economy-of-scale innovation race. You need to be able to come up with a new technology first or with the first ones to make some healthy margins, and most importantly be able to win design-in projects. Then when competitors catch up you are already designed in and can even live with diving prices as shipments ramp up. A game that P.A. Semi seems to have lost as they were late with their products and missed many design-in possibilities. That P.A. Semi has not had any design-in wins with the mobile infrastructure players (Ericsson, Nokia Siemens, Alcatel Lucent, ...) I know first-hand.

Now what has attracted Steve Jobs to buy this company?

I think it is all about differentiation. With Apple competitors catching up against the iPhone (Android and others) it is key for Apple to build better and most importantly unique products. Apple seems to expect that P.A. Semi can help them do that in particular with being able to integrate video and data communications functionality in a very low power design. In the end, people buy Apple gadgets not because they are cheaper but because they offer a better designed and a more usable product that also looks better than the rest.

If P.A. Semi again does not deliver then at the least Apple has better negotiation power with the chip suppliers which will pay the price for P.A. Semi easily by itself. Overall a no-risk deal for Apple it seems.