Apple has agreed to buy a relatively small microprocessor company named PA Semi. PA is known for making powerful chips that have very low power consumption. That would seem to indicate that Apple intends to use their own chips in the iPhone and other portable devices going forward, as these devices rely heavily on low power consumption. It would also seem to indicate that Apple is fixing to tell Intel to take a long walk on a short pier.
"Apple buys smaller technology companies from time to time, and we generally do not comment on our purposes and plans," said Apple (nasdaq: AAPL - news - people ) spokesman Steve Dowling. He declined to comment on the value of the deal, which a person familiar with the deal suggested was done for $278 million in cash. Apple is due to announce its quarterly earnings Wednesday.
The decision to center the iPhone design around a chip that Apple could own marks a significant strategic choice by Apple Chief Executive Steve Jobs, and is aimed at ensuring Apple can continue to differentiate its flagship phone as a raft of competitors flood the market. According to a source affiliated with the chip company, Jobs and Senior Vice President Tony Fadell led the tiny group of executives who spearheaded the acquisition, which included negotiations that took place in Jobs' home.
The function of outsourcing component manufacture is to achieve cost reduction through economy of scale. Apple is one of the few companies that is still a large, vertically integrated soup-to-nuts company, even supplying content for their devices and software for the computers they make. As long as Apple can charge a premium for the hardware and software that they sell, they can continue to avoid using the least expensive components available on the market.