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Apple Made Dialog An Offer It Really Couldn’t Refuse

Alex Webb
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Apple Made Dialog An Offer It Really Couldn’t Refuse

(Bloomberg Opinion) -- Dialog Semiconductor Inc. has waved the white flag.

The Reading, England-based company’s shares have lost nearly two thirds of their value since November as Apple Inc. threatened to develop its own power-management chips, the very component that Dialog currently supplies. The stock recovered as much as a third of those losses at one point Thursday after Dialog said it was selling a big chunk of its business to the iPhone-maker.

Apple will pay $300 million for 300 of the company’s engineers and to license some of its technology. It's pledged a further $300 million in purchases of Dialog components over the next three years. 

To be clear, the deal is good news for Dialog investors. It guarantees Apple's custom for a while and ensures that Dialog doesn't walk away with nothing. But the shares are still well below their peak. The company warned in June that a reduction in orders from its largest customer would lead to a five percent decline in revenue this year, and it hasn’t altered that forecast – the transaction won’t complete until 2019.

It also gives some clarity on Dialog’s future. It gets about three-quarters of its $1.4 billion in revenue from Apple. This move will reduce that dependency to about 40 percent over the next four years, and the company is seeking new business from other smart devices, connected cars and factories to plug the gap. In return, it's getting cash up front. Some of the proceeds will be used to buy back 10 percent of the stock.  

Putting all this together, the gain in the shares today makes sense – investors had feared that it would lose the entirety of its Apple business, but it looks like it will retain about a third of it, reflecting the size of the stock move.

Apple wasn’t obliged to do this – it could just as easily have built its own engineering team from scratch. But this was a cleaner solution. In one fell swoop, it got its paws on a team that was essentially working for it already, albeit indirectly. For acquihires, when a company is bought in order to get its skilled staff, $1 million per engineer is pretty much the going rate.

I've been critical of Dialog's over-dependency on Apple in the past, and this move goes some way to resolving that. It might be the best solution Dialog could have hoped for.

To contact the author of this story: Alex Webb at awebb25@bloomberg.net

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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