Wednesday, December 21, 2011

Apple’s $500 Million acquisition of Anobit

Apple recently announced acquisition of Anobit - a semiconductor design firm in Israel. Anobit is mainly into R&D of better Flash memory chips, which is of great interest to Apple.
Apple is big user of flash memory. All its products: iPod, iPad, iPhone, MacBook Air - all use NAND flash for memory and this acquisition is a clear indication of Apple’s future strategy towards Flash memory as the basic storage for all its products.

Currently, Apple buys lots of NAND Flash memory from a host of suppliers, but these are generic chips. Apple is acquiring Anobit to create unique Intellectual property in terms of NAND flash memory management - which will enhance the performance of Apple’s products.
In 2005, Apple acquired Intrinsity, a CPU design company based in Austin, Texas. Today the A5 CPU designed by folks at Apple’s Austin CPU design center forms the computing core of its iPad and iPhones. Though A5 is based on ARM CPU designs, the Graphic processing capability built into the chip ensures a superior video/graphics quality - a key product differentiator for iPhones and iPads.

Apple’s Future strategy with this acquisition

Today, there are few major performance bottlenecks in iPhones and Ipads - most of them are related to memory latency and memory errors. By acquiring Anobit and leveraging their Flash memory designs and technology, Apple can create unique competitive advantages for itself.

Acquisition of Anobit helps in two ways:

1. Improve the memory latency issues. Apple can integrate Anobit’s memory management technology with its CPU, Apple can create ultra fast chips - that will power the tablets, MacBook Air or other thin clients. Apple can also use the new SoC CPU (CPU + GPU+ Memory Manager) to power the next generation servers.

2. Anobit’s technology helps improve the reliability of Flash Memory chips. By locking in this technology, Apple can build better products than its competition in Smart phones. The current multi-cell flash memory chips used in cell phones suffer from unreliability and short lifespans.

Apple has historically shown the world the advantages of tightly coupling the hardware with its software. So as Apple moves ahead in the post-PC world, Apple is once again announcing to the world that it will control both the hardware and the software, and through that tight coupling - Apple will create unique competitive advantages.

The current generation of iPhones and iPads are built from generic off the shelf products which can be easily copied and Samsung has done that. So Apple intends to create a new breed of hardware - in which Apple owns all the IP and then designs chips which have a tightly integrated CPU, GPU and memory. Apple can then contract the manufacturing to other companies such as TSMC. Apple can then reduce it's dependency on Samsung for memory chips.

Is Apple planning to capture the Data Center?

Apple has long abandoned the server market. Ever since Apple moved to Intel Processors, Apple has steadily moved away from the desktops and servers. In November 2010, Apple announced the End of life to its Xserve rack servers.

But as the Cloud technology enters the main stream, there is a new demand for energy efficient servers - which run the cloud services. Already Apple has a very energy efficient ARM CPU technology and integrating it with efficient memory management technology, Apple can create a rack mounted server cluster - which consists of 16 or 32 or 64 individual servers. Such a cluster will be ideal for hosting web servers.

Today it is widely acknowledged that ARM architecture is ideal for low power super computers (see: )
With Apple already capturing a dominant marketshare in tablets and smart phones, Apple will have to look at other markets to keep Wall Street happy with its hyper growth, and web servers present one such golden opportunity for Apple.

Apple TV Solution

Apple has already announced its entry into TV sets market. Apple will have a unique technology in Televisions - wireless IP streaming of videos with limited storage on TV sets. Such a TV technology will call for high reliability Flash memory chips. TV programs are memory hogs, and TV sets tend to have a long life when compared to computers. In that view, having better technology to create a long lasting Flash memory chips will be key differentiator.

Closing Thoughts

Apple has huge amounts of cash, but it has been very frugal in acquisitions. Apple has always chosen to acquire niche technology in hardware and merged it with its software to create unique products. Acquisition of Anobit is also a step in the same direction, and Apple is telling the world that the future of computing performance gains will come by tightly integrating memory management with CPU and GPU.

How Apple will translate this technologies into exciting products needs to be seen. One obvious benefit from this acquisition will be to create competitive advantages to Apple’s existing product lines, and then leverage the technology to create new products such as TV, Servers etc.

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