Wireless Industry Analyst

Forbes.com reported late Tuesday that Apple (AAPL) has agreed to buy PA Semi, a 150-person microprocessor design company. Coming on the eve of its quarterly earnings announcement, the deal rumored to be worth $278 million has caught many chipset and handset vendors by surprise.

PA Semi was started in 2003 to design and develop high-performance low-power PWRficient^TM processors targeting high-performance embedded computing and control markets. The team is headed by the visionary designer Dan Dobberpuhl and is backed by Bessemer Venture Partners, Highland Capital Partners, and Venrock Associates. The 64-bit multi-core processors, the company claims, is “three to four times lower power than other similar processor platforms available today.”

I will leave further details of this deal to the frenzy of articles you will find in the web tomorrow. To me there are two very interesting questions to be addressed. Why should Apple buy PA Semi? What are the industry ramifications? I will pen my thoughts on the first question here and leave the second to a sequel.

The Apple spokesperson declined to comment on the plans and purposes of the acquisition. But there are definitely some obvious angles that I can think of.

Firstly, Apple knows very well that the future is about mobility, future is about technology convergence. Mobility, in turn, is limited by power and battery life. Whether it is the iPhone, the iPod or the Air, Apple has pushed its vendors towards efficient power management. Moving into the future, the company is perhaps looking to use this as a further differentiator from the innumerous clones springing up in the market. It wants to be the only one to leverage the design superiority of these PWRficient^TM processors for most, if not all its mobile platforms.

Secondly, PA Semi’s homepage proclaims the words ‘green computing’ in bold letters. Combine this with the timing of the announcement – Earth Day – and you get the message that Apple is trying to drive. It is committed to low-power, it is committed to going green.

Thirdly, an in-house application processor development unit, especially for Apple, will enable tighter and more efficient integration. This will also allow for further form-factor and power optimization. Customized software applications that enhance the user experience can be written. Furthermore, the internal development and optimization strategy will make it difficult for the copy-cats to reverse engineer. This certainly creates more value for any mobile product that comes from the Apple stable.

In summary, Apple has made this acquisition as a very well-thought out strategic initiative. While it is unlikely that we will see PA Semi-enabled products in the next year or two, you will likely find it as the application processor not just for the iPhone, but for most of Apple’s future convergence devices – mobile phones, music players and laptop replacement devices. In a sequel, I will look at what this means to the other chipset vendors sharing the luscious mobile pie.

(For the interested reader, I have covered iPhone and its impending 3G successor in great detail in my site. You can access it here, here and here.)

• The touch-screen that was the iPhone's identity
• Wi-Fi, allowing internet access through the 'Safari' browser with custom yahoo and google functions.
• Music download from Wi-Fi hotspots at Starbucks locations
• Digital Radio
• Flash drives of 8 or 16 GB

The 'No' list

• Of course, the phone part of iPhone
• A microphone
• Bluetooth
• A bigger hard-disk

The Analysis

• Wi-Fi had to come: The iPod has to compete with Zune features and allow for wireless download of music
• Flash Drive, the power saver: The flash drivehas been used to compensate for the power-hogging Wi-Fi feature. The 'Touch' advertises 22 hours of music playback or 5 hours of video playback. Makes sense!
• Wi-Fi browsing: The Safari browsing experience is likely to be a paid service. If so, then the primary use will be limited to the business population and the intended reach of the device will not be as fast. On the other hand, the easy-to-use interface along with the mobility may have people willing to spend if affordable.
• The microphone: With a microphone, it can be used as a VoIP phone along with the Wi-Fi feature. There were perhaps 2 reasons for its absence. Apple, wants to maintain a good relationship with the carrier community, especially considering it is yet to globalize the iPhone. Secondly, my suspicion is that the GSM chip from iPhone is still in place in the iPod touch. Although it makes economic sense for Apple not to spend design cycles for an iPod that is essentally an iPhone clone, the presence of a microphone will let hackers enable the phone feature as well at no cost.
  

Looking ahead, the next generation of iPod touch (not knowing when that will come) will have -

• Free browsing on Safari, or at least cheaper and more affordable services with a wider range of applications
• Bluetooth 2.0 or higher, perhaps integrated with Wi-Fi chips
• The microphone will come once the iPhone obtains a stronger foothold. VoIP calls from home or hot-spots will become popular, especially when integrated with a sleek iPod.

On a personal note, I am undoubtedly thrilled. I wanted to get an iPhone but did not think the phone part was worth it. So, apart from the Flash drive, the VoIP feature looks attractive for the future, but I don't think I can wait to get 'touched' by this new gadget from Steve Job's garage.

• There has been a rut in both iPod innovation and sales growth over the past couple of years. It is high-time Apple re-invents the product.
• The iPhone was an Avatar of the iPod but with phone capabilities. Steve himself announced that it was the most powereful iPod as yet. It makes sense that Apple should give the market a stand-alone non-phone version of such a gadget as well. Besides, its innate ability to surprise not with-standing, Apple should cater to customer demand and anticipation of features such as wide-screen, touch-screen etc.
• Wi-Fi is already in competing gadgets as the Microsoft Zune. iPod should not appear dated especially given that another of Apple's product already has such features. I do not think this will encroach the iPhone's market since the phone and its associated features (like the voice mail feature) have to be the USP of iPhone.
• Wi-Fi will open up avenues of using the iPod as a fixed wireless phone (with VoIP services) and would be a handy addition. The issue with Wi-Fi however is going to be battery life. Unless Marvell and Apple have worked a solution for that, this may be a bottle-neck.

• A Mac OS based iPod, again in line with the iPhone thereby helping it transition from just a music player to a PC-surrogate. This would open the gates to applications and features that make the iPod powerful.
• A flash version of iPod with less battery utility to compensate for the power consumption of the Wi-Fi chip.