Steve Jobs buys PA Semi for a chip — a bargaining chip

Steve Jobs likes to say that Apple is the last company that makes "the whole widget." But it doesn't, not really. Sure, Apple makes software and designs hardware — but inside its gadgets are silicon brains from the likes of Samsung and Intel. Jobs is adept at bullying chipmakers for lower prices and faster delivery, but he can't order around their engineers like he does his own employees. That must rile him. Jobs's ego, therefore, is the best explanation for Apple's $278 million acquisition of PA Semi, a microprocessor design startup. But is Apple getting into the ruthlessly competitive semiconductor business?

Likely not. Expect to read lots of gadget-press slavering over PA Semi's speeds and feeds, and debate over its chips' suitability for an iPhone. That may well have nothing to do with why Apple bought the company.

PA Semi's prize is its founder, Dan Dobberpuhl, a famed chip designer, and his 150-person staff. At less than $2 million per engineer, the price Apple paid is in the range Cisco pays to snap up talented engineers. With them working at Apple, Jobs can push established chipmakers to adopt its technical innovations and perhaps swap licenses for intellectual property. That's far more likely than actually switching away from Intel chips for the Mac; Apple actually explored using PA Semi's chips before choosing Intel. Even the iPhone, which would benefit more from PA Semi's low-power chips, is an unlikely candidate for an all-new chip design.

Why? Volume economics favor Intel and Samsung so strongly that it's hard to imagine that a new microprocessor design from the PA Semi team could replace their wares. $278 million doesn't buy Jobs a rival chip; it buys him a tool to chip away at his suppliers' prices.