London newspaper the Evening Standard reported a very interesting rumor following Apple’s (s aapl) quarterly financial report Tuesday. According to the British paper, Apple is in talks with ARM Holdings, the UK company that designs the chip used in the iPhone, along with a huge percentage of the chips found in mobile devices in general.
The sources cited by the Evening Standard are well-informed “gossips,” but there’s evidence to suggest that this rumor may have more too it than just idle speculation, since the stock price of ARM rose significantly on the news as five-thousand shares of the company were traded, making it the biggest gainer on the day.
In case you’re unfamiliar with the company, ARM isn’t actually a chip maker itself, but instead it licenses its designs to hardware manufacturers like Apple, who will then build the tech into their own products. A prime example is the A4 chip that powers the iPad, which Apple developed in-house. The A4 is based on an ARM design. It isn’t the only one, either. Qualcomm’s Snapdragon, a popular Android processor, also uses an ARM-based design. In fact, 75 percent of global devices that use 32-bit processors use ARM tech.
The Advantages of Acquisition
Apple’s bid is said to be around the $8 billion range, which sounds crazy, until you consider that Apple apparently has cash reserves of $41.7 billion on hand to fund ventures and acquisitions exactly like this one. Once acquired, ARM would allow Apple certain privileges. First of all, it wouldn’t have to license its own tech in order to develop new chips, so you can bet more projects like the A4 would go ahead, especially for Apple’s growing stable of mobile devices.
Of course, that’s not the only advantage. ARM would still likely continue to be the place most mobile device makers go to get their chip design licenses, so Apple would then gain all the revenue from that branch of the business, too. And not only would they get that revenue, but they would also be in the power position of owning the technology most of its competitors license whenever they create a new device.
Antitrust and other industry regulations would obviously prevent them from doing anything as brash as blocking competitors like those using Google’s (s goog) Android OS from being granted licenses, but that’s not the only way Apple could use its new found authority. Since other hardware makers would have to apply for a license before beginning their chip development, Apple would be privy to information about its competitors’ product release plans well in advance of usual, and Cupertino would be paid for the privilege.
An Arms Race
If this is an arms race between Google and Apple, an ARM acquisition would definitely put Apple ahead in the chip department. Google only recently nabbed AdMob out from under Apple’s own bid for the company, forcing the Mac maker to look elsewhere to help back its iAds plan.
It’s only just come out that Google has since answered Apple’s acquisition of chip maker P.A. Semi with the purchase of AgniLux, a startup chip company founded by P.A. Semi employees who left that company when Apple originally acquired it. Ars Technica doesn’t think Google acquired the company with any intent of making its own chips, but as a preemptive defense against possibly having to route its chip licensing plans through Apple…it could make sense.
The most likely outcome if an ARM acquisition actually does go through? Nothing but good things for future iPhone, iPod and iPad owners. All iDevices could conceivably receive significant boosts in battery life and processor power with an entire chip design company working ’round the clock to eke more out of ever more energy conserving designs, with direct access to prototype Apple hardware to test them out on. So cross your fingers for this one, even if it does put more power in the hands of Apple than it should rightly have.
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