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Apple to buy Intrinsity?

I recently read an interesting rumor off of tech blog Ars Technica that Apple has acquired small processor company Intrinsity – who’s website is, as of the time of this writing, down.

imageIn the popular tech press, very few self-professed gadget fans are aware of the nuances of the chip technology which powers their favorite devices. So, first question, what does Intrinsity and why would Apple be interested in them? Intrinsity is a chip design company known for its expertise in making existing processor designs faster and more efficient. They’ve been retained in the past by ATI (the graphics chip company which is now part of AMD) to enhance their GPU offering, Applied Micro (formerly AMCC) to help speed up their embedded processors, and more recently were used by Samsung (and presumably Apple) to speed up the ARM processor technology which powers the applications on the iPhone and the iPad.

Second question, then, would Apple do it? Questions about Apple are very difficult to answer – in part because of the extreme amount of hype and rumor surrounding them, but also because they tend to “think different” about business strategy. Normally, my intuition would say that this deal is unlikely to make much sense. I’ll admit I haven’t looked at the deal terms or Intrinisty’s finances, but my guess is Intrinsity has a flourishing business with other chip companies which would probably be jeopardized by Apple’s acquisition (especially now that Apple is itself sort of a chip design company and will probably want to de-emphasize the rest of Intrinsity’s activities). An acquisition like this could also be risky as Apple’s core strengths lie in building and designing a small number of well-integrated hardware/software products. While most analysts suspect that Apple contributed a huge amount to the design of the Samsung chip that’s currently in the iPhone, Apple is unlikely to have a culture or set of corporate processes that match Intrinsity’s, and I suspect nursing a chip technology group while also pushing the edge on product design and innovation at some point just becomes too difficult to do (which may partially explain the exodus of PA Semi, Apple’s other chip company purchase, engineers post-acquisition).

Of course, Apple is not your ordinary technology company, and there are definitely major benefits Apple could gain from this. The most obvious is that Apple can avoid paying licensing, royalty, and service fees to Intrinsity (which can be quite large if Apple continues to ship as many products as it does now) if it brings them in-house. Strategically, if Intrinsity is truly as good as they claim (I’ve read my fair share of rumors that the A4 processor in the iPad was a joint development effort from Samsung, Apple, and Intrinsity), then Apple may also want to take this valuable chess piece off the table for its competitors. Its no secret that major chip vendors like Qualcomm, NVIDIA, Texas Instruments, and Intel see the mobile chip space as the next hot growth area – Apple could perceive leaving Intrinsity out there as a major risk to maintaining its own device performance against the very impressive Snapdragon, Tegra, and OMAP (and potentially Intel Atom) product lines. imageThis is a similar move to what Apple did with its equity stake in Imagination Technologies, the company that licenses the graphics technology that powers the iPhone, the Palm Pre, and Motorola’s Droid. Its widely believed that, had Imagination been willing (and had Intel not also increased its stake in Imagination), Imagination would currently be an Apple division – highlighting Apple’s preference to not license technology which could potentially remain available to its competitors, but to bring it in-house.

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So, in the end, does an Apple-Intrinsity deal make sense? Or is this just a rumor to be dismissed? It’s hard to say for sure (especially without knowing much about Intrinsity’s finances or the price offered), but if Intrinsity has key talent or intellectual property that Apple needs for its new devices, then Apple’s extremely high volume (and thus large payments to Intrinsity) could be the basis for fairly sizable financial benefits from such a deal. More importantly, on a strategic level, Apple’s need to maintain a performance lead over new Android (and Symbian and Windows Phone 7) devices could be all the justification needed for swallowing this attractive asset (note: AnandTech’s preliminary review shows the iPad outperforming Google’s Nexus One on web rendering speed – although how much of this is due to the iPad having a bigger battery is up for debate). Its hard to say for sure without knowing much about how profitable Intrinsity is, how much of its business comes from Apple/Samsung, and what sort of price Apple can negotiate, but there is definitely a lot of reason to do it.

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  1. […] solutions – Apple’s hallmark is the vertically integrated model, going so far as to have their own semiconductor solution and content store (iTunes). This not only lets them maximize the amount of cash they can pull in […]

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