Monday, May 11, 2009

Does PA Semi make sense now?

About a year has passed since, in 2008, Apple acquired PA Semi, a fabless CPU maker with some success selling a high performance, low power 64-bit PPC CPU in embedded systems, for $289 million.

To put that number in perspective, it is less than half what Intel got for its Xscale product when it sold that to Marvell in order to get out of the ARM CPU business.

Apple immediately withdrew commitment to PA Semi's road map and notified PA Semi's customers they should not consider their supply of chips assured. Apple's investor relations put the acquisition into the category of small-firm acquisitions Apple does not feel obligated to explain in detail. In other words “move along, nothing to see here.”

But, of course, there is plenty to want to see: Sun crippled themselves by keeping a CPU business alive too long. Apple shifted CPUs twice in desktop products, from 68k to PPC and finally accepting that nobody can compete with Intel in the high-stakes game of general-purpose CPUs. So what is this dalliance with CPU designers? Is Apple losing the hard-won focus Jobs fought to restore? Is Apple really going to use three different CPU architectures in its product line?

At the time of the acquisition, Intel's Atom had still not found a market: Too power hungry for mobile handsets. Microsoft's UMPC had flopped. And first attempts at netbooks were not a success. Now, however, both markets and technologies have sorted themselves out, and we can discern if this acquisition makes more sense.

PA Semi is a second act for a serially successful founder, Dan Dobberpuhl. Ex of Digital's Alpha and StrongARM projects and founder of SiByte, which was sold at a handsome price to Broadcom, PA Semi is solidly in the first tier of what is a remarkably vital if not very visible market of CPU vendors based on licensed architectures (and novel ones, too, mainly in the area of multicore systems), mainly sold into embedded systems.

That's an important bit of background because it highlights the fact that Apple did not necessarily buy PA Semi to launch a system with a PPC CPU. Dobberpuhl and his team would be as wizardly at making an ARM, MIPS, or even x86 CPU as they would using the PPC architecture. The likeliest target for Apple is to come up with a variant of the ARM architecture with unique performance advantages.

The market has also evolved: Atom is the basis for the success of netbooks. Apple is locked out of the low-cost netbook market because the price points and margins are even harsher than mainstream PC products. Linux has become slick enough to gain customer acceptance in netbooks. Windows 7 got a bit quicker. Android successfully launched despite lackluster hardware and T-Mobile USA's struggles to get out of the lower tier in the US market. More recently, Android looks likely to go up-market from smartphones into a tablet/netbook form factor.

Everyone is gunning for iPhone, and Web access on-the-go is creating new product categories. Apple needs to be able to create a winning product in the Web-pad/netbook categories, and it looks like the PA Semi acquisition will be part of providing Apple with a truly unique advantage where other players are buying their CPUs from Intel or TI, or from makers of mobile SoCs, like Qualcomm.

This is made plausible by the fact that this low-cost/low-power CPU market cannot be dominated by Intel's unique ability to spend mind-boggling sums on state of the art fabs. The model for this segment has been established and refined by ARM and its biggest licensees, like TI. Apple, therefore, does not risk falling into the same trap that chasing architectural advantage in desktop CPUs led to.

In this case, there is no trap, but an opportunity: There is a seam in the market that runs between Atom performance and ARM power-efficiency. It is a complex seam that isn't just about CPU architecture, but also about compilers, operating systems, peripherals, drivers, user interface and SDKs. And the seam is multidimensional: It is not just between Apple and Atom and Windows 7 on cheap netbooks, but Android and larger-than-smartphone devices as well, and with Linux, in the form of Moblin and Netbook Remix also looking to become a threat.

If Apple can give themselves a unique advantage in hardware, with a uniquely powerful ARM or other CPU architecture, sufficient to overcome the netbook price/margin barrier, Apple is uniquely well-placed to provide a continuum of software, from desktop to smartphone and all points in between. If they fail to do this, Apple will give up the potential to create as much value in the emerging Web-pad and netbook segments as they created with iPhone.

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