Dialog Semi Crashes On Report Apple Will Use Its Own Power Chips

UK-based Dialog Semiconductor crashed as much as 17% following a Nikkei report that Apple will design its own power chips for use in iPhones as early as 2018, cutting dependence on Dialog "as it seeks to boost its semiconductor capabilities to better compete with rivals."

As the Nikkei adds, The main power management chip controls an iPhone's charging function, battery management, and energy consumption. "Based on Apple's current plan, they are set to replace partially, or around half of its power management chips to go into iPhones by itself starting next year," said the source. Another person said Apple was indeed developing its own power management chips for iPhones but the time frame was less certain and could be delayed to 2019.

Apple's main power management chips for the iPhone, iPad and Apple Watch are now exclusively designed by U.K.-based Dialog Semiconductor, according to Credit Suisse. Power management chips are one of the most crucial and expensive components after core processors, modems and memory chips.

Apple is keen to boost production of its own semiconductors to better compete in emerging technologies such as artificial intelligence applications and reduce reliance on external chip designers.

 

By developing more of its own chips, Apple will also be in a better position to integrate software and hardware and to manufacture products that can be differentiated from those of its rivals such as Samsung Electronics and Huawei Technologies, according to analysts.

 

Apple's new in-house power management chip would be the most advanced in the industry, according to the sources, and could have processing capabilities that allow it to better monitor and control power consumption among various components. That means iPhone users could expect devices capable of delivering better performance on lower power consumption.

Such new chips will be solely manufactured by Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker, according to the industry sources. TSMC has been Apple's sole supplier manufacturing core processor chips for iPhones since 2016. Currently Dialog's power management chips for Apple's iPhones are also made by TSMC.

In 2016, Apple was TSMC's No.1 customer, contributing 17% to the Taiwanese chipmaker's overall revenue. That contribution will grow to around 20% in 2017 and continue to rise in 2018, according to Bernstein Research. Apple already designs its own core processors, a bionic neural engine chip to handle facial, image and speech recognition and other machine-learning algorithms. It also builds its own fingerprint chips, and a connection chip used in Airpods to allow seamless pairing with other Apple products with the wireless headphone

Furthermore, Apple is also building its own graphic processor and will no longer use ones provided by Imagination Technologies in 15 months to two years' time, the British chip designer said in a statement in April, which crushed thee stock of Imagination, as Apple was its no.1 customer that accounted for over half of its revenue. The British chip designer eventually sold itself to Canyon Bridge, a private equity investment fund backed by state-owned Chinese fund Yitai Capital, in September.

There were hints today's announcement was coming: on April 11, Dialog Semi shares closed down 16% following a note from private bank Bankhaus Lampe suggesting that Apple could cut back the use of the company's power management integrated circuits.

And now, the focus again turns to Dialog, where Apple accounted for 74% of the company's revenue in 2016. The result, predictably, was the biggest drop in Dialog stock price since October 2015, down as much as 17%.