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Apple signs US$600m deal with Dialog Semiconductor for assets, staff

London

APPLE Inc has signed a deal with Dialog Semiconductor Plc to license the UK chip designer's power management technology and acquire certain assets, including more than 300 staff.

Apple will pay Dialog an initial US$300 million plus an additional US$300 million for product delivery over the next few years. The British firm also won a number of new contracts from the iPhone maker, including the supply of power management, audio subsystem, charging and mixed-signal integrated circuits, according to a statement on Thursday.

Dialog's shares rose as much as 34 per cent in trading in Frankfurt on Thursday, the most since June 2000.

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The deal comes almost a year after Dialog warned investors that Apple - its biggest customer - could design its own power-management chips in coming years. Dialog relies on Apple for about three-quarters of its revenue, predominantly through the supply of chips that handle charging and manage power in smartphones.

Dialog chief executive officer Jalal Bagherli said in an interview on Thursday that the deal helps the semiconductor company scale down that reliance to "about 45 percent" over the next few years, and that "the licensing deal is non-exclusive, so we can use the IP for other customers without restrictions."

Commenting on potential M&A activity as a result of the deal, Mr Bagherli said that "clearly if we have another US$600 million in the bank it helps us to not be reliant on borrowing for small deals at least."

While Apple has developed its own processors for years, the company only recently stepped up the in-house design of components, including graphics, Bluetooth and other phone-related chips. That's expensive and creates new risks, but helps maintain leverage over suppliers after a wave of acquisitions cut the number of chipmakers it works with.

Apple began using its own graphics chips, or GPUs, in the iPhone 8 and iPhone X. That continued with the recently released iPhone XS and Apple Watch Series 4. Apple uses technology from another UK chip designer - Imagination Technologies Group Plc - in products like the iPad and Apple TV, but is expected to eventually transition all of its iOS-based products to its own graphics processors.

Following the deal with Apple, Dialog will concentrate on businesses including the Internet of Things, mobile, automotive and computing. Apple's new hires consist of around 16 per cent of Dialog's total workforce. The US company will also co-locate employees at some of Dialog's facilities in Italy, Germany and the UK.

Dialog's 2018 revenue will not be affected by this agreement and the company will continue shipments of current products in production to Apple, the company said in the statement. Dialog will also launch a share buyback programme of up to 10 per cent of its outstanding shares following its third-quarter trading update. BLOOMBERG