Episode 30 P.A. Semi + AuthenTec

Summary Notes


In episode 30 of Acquired, hosts Ben Gilbert and David Rosenthal discuss Apple's strategic acquisitions of PA Semi and AuthenTec, marking the 10th anniversary of the iPhone. PA Semi's acquisition brought in-house the expertise for Apple's A-series chips, while AuthenTec provided the Touch ID sensor—both pivotal for iPhone's hardware innovation. The hosts highlight how these acquisitions were crucial in differentiating Apple's products in terms of performance and security, reflecting on the broader impact and future implications of such tech integrations. They also touch on the company's approach to talent acquisition, product development, and maintaining a competitive edge in the mobile device market.

Summary Notes

Introduction and Podcast Overview

  • Episode 30 of Acquired podcast celebrates the 10th anniversary of the iPhone.
  • Focus on Apple's acquisitions of PA Semi and AuthenTec.
  • These acquisitions were crucial for the development of the A series chips and the Touch ID sensor in iPhones.
  • Hosts Ben Gilbert and David Rosenthal are recording from different locations, with Ben at home and David on the road.

"Today's episode, we're covering two acquisitions that we believe go together nicely. Apple's acquisition of PA Semi and AuthenTec. We think it's a really nice way to mark the 10th anniversary of the iPhone."

The quote highlights the main topic of the podcast episode, which is the discussion of Apple's strategic acquisitions that contributed to the iPhone's technology.

Pilot Sponsorship and Business Philosophy

  • Pilot is the episode's sponsor, a startup-focused accounting firm.
  • Pilot provides comprehensive financial services, including accounting, tax, and CFO services.
  • Emphasizes the importance of startups focusing on their core product and outsourcing non-core activities like accounting.
  • Pilot has grown significantly and is trusted by many successful startups.

"Pilot both sets up and operates your company's entire financial stack... Pilot takes care of all that. And they've been doing this now for years across thousands of startups in Silicon Valley and beyond."

This quote explains Pilot's role in handling the financial operations of startups, underscoring the sponsor's relevance to the podcast's entrepreneurial audience.

PA Semi's History and Acquisition by Apple

  • PA Semi, originally called Palo Alto Semiconductor, was founded in 2003 by Dan Dobberpuhl.
  • The company focused on low-power, high-performance chips using PowerPC architecture.
  • PA Semi had a deal in the works with Apple for MacBooks, which fell through when Apple switched to Intel chips.
  • PA Semi released a single processor before being acquired by Apple in 2008 for $278 million.
  • The acquisition was part of Apple's strategy to move away from Samsung processors for the iPhone.

"So at this point, this was 2005. Apple doesn't end up acquiring PA Semi until 2008... a lot of people think PA Semi is kind of left for dead at this point."

The quote captures the uncertainty surrounding PA Semi's future before its acquisition by Apple, highlighting the company's precarious position after Apple's switch to Intel.

ARM vs. x86 Architecture

  • ARM architecture is known for low power consumption, making it suitable for mobile devices.
  • x86 architecture, primarily from Intel, is used in desktops, laptops, and servers.
  • PA Semi's expertise was in optimizing the power-to-performance ratio in chip design.
  • The discussion includes the historical context of Apple's switch from PowerPC to Intel chips and the impact on PA Semi.

"Typically computers as we know them, desktop computers, laptops and servers, use x86 architecture from Intel... ARM chips in our iPhones... have come to be extremely popular in the last few years is because as we move to mobile devices, we have stricter power requirements."

This quote explains the difference between ARM and x86 architectures, setting the stage for understanding PA Semi's value to Apple in developing low-power chips for mobile devices.

Community Engagement and Listener Support

  • The hosts encourage listeners to leave reviews and share the podcast.
  • They mention the Acquired Slack channel, where the community discusses deals and episodes.
  • The call-to-action is aimed at increasing listener engagement and growing the podcast's audience.

"We would love a review on iTunes... It's how we grow the show and it's how we get new listeners."

The quote is a direct appeal to listeners to support the podcast by leaving reviews and sharing it with others, emphasizing the importance of community in the show's growth.

Early iPhone Era and Apple's Direction

  • The iPhone was still in its early stages and was not yet recognized as the future of Apple.
  • There was confusion about Apple's acquisition of PA Semi, with speculation about a potential return to the PowerPC architecture or a new ultra-portable device.
  • The iPod was still a significant product for Apple, comparable in importance to the iPhone at the time.

"But people didn't really realize yet that the iPhone was about to become Apple and that the Mac was going to take a backseat."

This quote highlights the market's underestimation of the iPhone's potential impact on Apple's product hierarchy and the subsequent shift in focus from the Mac and iPod to the iPhone.

PA Semi Acquisition and Development of the A4 Chip

  • PA Semi was acquired by Apple, and its team was redirected from their original projects to work on an ARM design.
  • This project led to the development of the A4 chip, which was first used in the iPad.
  • Dan, a member of the PA Semi team, was known for his expertise in low-power performance trade-offs.

"Apple already had an existing project working on an arm design, working on what would become the a four, the first Apple chip that they would put out, which actually launched with the iPad."

This quote explains that PA Semi's team was integrated into an existing Apple project that was focused on creating the A4 chip, marking a significant move towards Apple's own silicon for mobile devices.

Evolution of the iPad and User Interface Design

  • The original iPad was considered advanced at its launch, but quickly became outdated.
  • Skuomorphic design was prevalent in early iOS applications, reflecting a desire for interfaces to be tactile and engaging.
  • Technological advancements have led to devices with more screen real estate and better battery life, demonstrating the rapid pace of innovation.

"And now it looks like a dinosaur, right?"

This quote underlines the rapid progression of technology and how devices that were once cutting-edge can quickly become obsolete.

Authentic and the Touch ID Technology

  • Authentic was spun off from a defense contractor and focused on security and authentication for embedded devices.
  • The company's early prototypes were large and unreliable, but over time, the technology improved.
  • Apple's acquisition of Authentic was strategic, allowing them to integrate fingerprint authentication and pave the way for Apple Pay.

"So authentic works on this technology for a long time."

This quote indicates the extensive R&D that went into developing the Touch ID technology, which was a key factor in Apple's acquisition of Authentic.

Apple's Strategic Acquisitions for iOS Differentiation

  • Apple's acquisitions of PA Semi and Authentic were both aimed at creating differentiating features for iOS devices.
  • PA Semi's acquisition was primarily a talent acquisition, while Authentic provided a specific technology.
  • These acquisitions enabled Apple to integrate hardware and software in a way that competitors could not easily replicate.

"The ability of Apple to integrate these two products creates an advantage that other manufacturers don't have."

This quote emphasizes the strategic value of Apple's acquisitions in giving them a competitive edge through the integration of hardware and software.

The Importance of Device Security and Integration

  • Apple's A-series chips feature a secure enclave for processing security applications in isolation.
  • Touch ID operates in a secure, isolated environment, enhancing device security.
  • Apple's commitment to device security is evident in its ability to resist external pressure to compromise encryption.

"They really are able to say that all the security vectors that people would normally do to get into devices by routing it or having direct hardware access, those fingerprints and the ghosts in memory of those fingerprints don't even ever exist to be able to go and get them later."

This quote highlights Apple's technical capability to ensure the security of biometric data on its devices, which is critical in the context of privacy and security debates.

Irony of ntiC's Role in Privacy

  • ntiC, originally a spin-out from a major defense contractor, known for decreasing privacy on the Internet.
  • ntiC becomes a key element in Apple's privacy strategy, despite its origins.

ntiC is a spin out from a major defense contractor ranked by Wired magazine as right behind the NSA in terms know decreasing privacy on the Internet and then becomes a cornerstone of Apple's privacy strategy.

The quote highlights the ironic transition of ntiC from being associated with reduced privacy to being an integral part of Apple's privacy framework. It underscores the contradiction between the company's origin and its eventual role at Apple.

Introduction of Statsig as a Sponsor

  • Statsig is introduced as a new sponsor for the episode.
  • The CEO of Statsig, Vijay, has an impressive background with ten years at Facebook.
  • Statsig is a feature management and experimentation platform.

Our sponsor for this episode is a brand new one for us, Statsig.

This quote marks the introduction of Statsig as the episode's sponsor, setting the stage for further discussion about the company and its services.

Vijay's Story and Statsig's Promise

  • Vijay, the CEO of Statsig, made significant contributions at Facebook.
  • Statsig embodies the product engineering tools used by Facebook.
  • Statsig allows product teams to ship features faster and measure their impact.

Before founding Statsig, Vijay spent ten years at Facebook where he led the development of their mobile app ad product.

This quote provides background on Vijay's expertise and experience, which informs the capabilities and promise of Statsig as a platform for product development and experimentation.

Statsig's Capabilities and Impact

  • Statsig enables real-time product observability.
  • The platform allows companies to link new features to core business metrics.
  • Statsig's clients include notable tech companies.

Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing, and see the impact every feature is having on the core business metrics.

This quote explains the core functionality of Statsig, emphasizing its ability to streamline product development and directly measure the impact of new features on business performance.

Statsig and AI Feature Rollout

  • Statsig is particularly effective for AI feature rollout and testing.
  • Notion's use of Statsig has facilitated rapid product evolution.
  • Statsig integrates with data warehouses for compatibility with existing data systems.

Also, Statsig is a great platform for rolling out and testing AI product features.

The quote underscores Statsig's utility in managing and evaluating AI features within products, highlighting its role in the fast-paced evolution of AI-driven applications.

Apple's Acquisition Strategy

  • Apple faced a build vs. buy decision with Pa semi and chose to acquire.
  • The acquisition of ntiC was competitive, with Samsung as a potential buyer.
  • Apple's acquisitions were driven by the need to control key technologies in-house.

It was basically a builder buy decision for Apple and clearly they were working on building anyway, but this just rapidly accelerated their pace.

The quote reflects on Apple's strategic decision to acquire Pa semi, which significantly sped up their development process, illustrating the importance of acquisitions in Apple's growth strategy.

Apple's Product Perspective and Competitor Comparison

  • Apple thinks about products from a user-centric perspective.
  • Competitors in the Android ecosystem do not share the same focus on integrated security and privacy.
  • Apple's vision for integrated products is distinct from its competitors.

Apple really think about products from a whole product sense and from a user centric and compellingness to a user perspective.

This quote emphasizes Apple's holistic approach to product development, focusing on user experience, which sets them apart from competitors, particularly in the integration of security and privacy features.

Apple's Choice of ARM over Intel's Atom

  • Apple's decision to use ARM processors in iPhones instead of Intel's Atom is highlighted.
  • An article from CNET humorously titled "Apple unlikely to get up an atom" is mentioned.

And yet intel, their partner for all their Mac computers, had a low power chip they were developing called the Atom.

The quote points out the choice Apple made to go with ARM processors for the iPhone, which was a strategic decision that diverged from their use of Intel chips in Mac computers.

Tech Themes: Hardware Differentiation and Strategic Integration

  • Apple's in-house development of A series chips has opened new product categories.
  • Vertical integration of silicon has been key to Apple's finely tuned products.
  • Apple's approach contrasts with a modular approach, bringing strategic components in-house.

It's incredible that Apple's been able to so finely tune their products because they've been able to control the underlying chip and surrounding pieces of that rather than buying it from a third party.

This quote highlights the strategic advantage Apple gained by developing its own chips, allowing for greater control and customization of its products, which is a cornerstone of their tech theme of hardware differentiation.

The Importance of Timing and Market Waves

  • The timing of market entry is critical for success.
  • Apple's timing with the iPhone capitalized on technological readiness and consumer willingness.
  • The maturation of the smartphone market raises questions about the need for further power increases.

The key to startup and venture capital is targeting the big market at the right time and the right time of the wave.

The quote stresses the importance of market timing for startups and investors, using Apple's well-timed entry into the smartphone market as an example of successful alignment with market waves.

Sustaining vs. Disruptive Innovations

  • Apple's acquisitions of Pa semi and ntiC are seen as sustaining innovations.
  • The focus is on extending the current wave of mobile and smartphones.
  • The tech industry must identify the next wave of innovation.

Both of these acquisitions are total Clayton Christensen sustaining innovations, not disruptive innovations.

This quote categorizes Apple's acquisitions as sustaining innovations, which are aimed at improving and extending the existing market wave rather than disrupting it with entirely new technologies.

Future of Computing: Client vs. Server Power

  • The relevance of powerful client-side processors in the age of cloud computing and machine learning is questioned.
  • The shift towards service-driven innovations could diminish the competitive edge of powerful on-device chips.

How much does all this matter going forward? It's clearly been super important in the last decade to have all this power on our phones.

The quote prompts reflection on the future significance of powerful client-side processors in a computing landscape increasingly dominated by cloud-based services and machine learning.

Machine Learning and On-Device Data Processing

  • Apple's stance on on-device machine learning and privacy through differential privacy is discussed.
  • The debate centers on whether on-device processing can compete with cloud-based machine learning.

Apple is taking the position that they can do a lot of this really advanced machine learning and cool applications that you're seeing from Google and others, that they can do it on the device and they can do it without sending your identifiable information into the cloud.

This quote captures Apple's philosophy of balancing advanced machine learning capabilities with user privacy by processing data on the device, a key point in the discussion on the future of computing and data handling.

Grading Apple's Acquisitions

  • The financial impact of Apple's acquisitions on their revenue is considered.
  • The strategic value of in-house silicon and security features in differentiating Apple's products is acknowledged.
  • The role of these acquisitions in positioning Apple for future waves of technology is debated.

For know, this really is kind of, as we were talking about sort of a tale of two cities, a tale of two acquisitions was the best of acquisitions, was the worst of acquisitions for Apple.

The quote introduces the grading discussion by framing Apple's acquisitions as a dichotomy, reflecting on their successes and potential shortcomings in the context of Apple's long-term strategy.

Apple's Sustaining Acquisitions and Financial Analysis

  • Apple sold approximately 720 million iPhones with an average selling price of around $600, generating over $400 billion in revenue.
  • Assuming a 40% gross margin, Apple's gross margin from these units is around $170 billion.
  • The contribution margin from acquisitions' differentiated features is estimated at 5%, equating to almost $10 billion.
  • The return on acquisitions is significant, with a ten-to-one return on investment.
  • These acquisitions are categorized as sustaining, not transformative like Instagram or Next.
  • Speaker A gives a grade of B+/A- leaning towards A- for Apple's acquisitions due to their execution and impact on competition.

"Just those generations of iPhones sold about 720,000,000 ish units at roughly a $600 average selling price... that's over $400 billion of revenue... You're at sort of $170,000,000,000 of gross margin generated by units during that time... That's still almost $10 billion in incremental sort of contribution margin from these acquisitions." This quote breaks down the financial success of Apple's iPhone sales and the estimated gross margin generated, highlighting the substantial contribution margin from the features added through acquisitions.

Comparative Analysis of Acquisitions

  • Speaker A compares Apple's acquisitions to transformative acquisitions like Instagram and Next.
  • Instagram and Next generated entirely new business lines for their companies.
  • The analysis suggests that Apple's acquisitions did not create new categories but were still successful in sustaining innovation.

"I compare them versus our benchmarks of what great acquisitions are in Instagram and in next. Those are acquisitions that generated entirely new business lines and categories for their companies." This quote establishes a benchmark for evaluating acquisitions, noting that while Apple's acquisitions were successful, they did not create new business lines like Instagram and Next did for their respective companies.

Future of Technology and Apple's Strategy

  • Speaker B discusses a future with decentralized computing and a networked ecosystem of devices.
  • Bandwidth constraints are considered more pressing than compute or storage constraints.
  • Apple's in-house silicon design enables an optimized multi-device experience.
  • Speaker A agrees and notes the unpredictability and rapid evolution of technology.

"Even though a lot of that intelligence is going to be done in the cloud, we still live in a world that's more bandwidth constrained than it is compute constrained or storage constrained." This quote emphasizes the current technological limitations due to bandwidth constraints and how Apple's strategy of in-house silicon design may provide an advantage in a decentralized computing future.

Alaska Airlines and Virgin America Merger

  • The merger is actively communicated to customers through branding and informational materials.
  • Speaker A, as a frequent traveler on the west coast, is enthusiastic about the merger and the combined loyalty programs.

"All the flight attendants were wearing these really well designed shirts that blend the Virgin brand into the Alaska brand and extremely informative information on how all the point stuff gets combined." This quote describes the visible efforts to communicate the merger between Alaska Airlines and Virgin America to passengers, highlighting the attention to detail in blending the brands and informing customers about loyalty program changes.

Walmart's Reorganization and Jet Acquisition

  • Walmart is restructuring its e-commerce operations, with a significant presence of Jet personnel in leadership positions.
  • The acquisition is seen as an expensive talent acquisition for Walmart.
  • The high price tag of the acquisition may command more respect and adherence internally.

"News just came out in a memo from Mark Lori basically reorgang most of the e-commerce operations@walmart.com. And unsurprisingly, it's mostly jet folks who are taking over." This quote informs about the recent organizational changes at Walmart's e-commerce division, indicating that personnel from the acquired company Jet are taking on leadership roles, suggesting a talent-focused acquisition strategy.

Acquired Podcast Themes and Success Factors

  • The podcast explores why certain acquisitions are successful and how to replicate that success.
  • Facebook's approach of keeping teams separate post-acquisition is highlighted.
  • Promoting leaders from the acquired company within the larger organization is seen as a positive strategy.

"One theme that we immediately identified that Facebook does very well is this keep the team separate mantra where you let teams exist on their own for a long time." This quote identifies a key strategy used by Facebook in managing acquisitions, which involves allowing acquired teams to operate independently to preserve their successful dynamics and culture.

Snap Inc. IPO and Corporate Control

  • Anticipation for Snap Inc.'s IPO is high amidst drama and allegations of fraud.
  • Founders Evan Spiegel and Bobby Murphy will maintain control through super voting shares.
  • The upcoming IPO is expected to be a significant topic for the Acquired podcast.

"There was an article, a series of articles, I believe, right at the end of 2016 about potential fraud at the company and overstating their growth numbers. And then news just came out this week that, unsurprisingly, Evan Spiegel and Bobby Murphy are going to have super voting shares and control the vast majority of the voting shares of the company." This quote discusses the controversies surrounding Snap Inc. leading up to its IPO, including concerns over the company's growth numbers and the founders' decision to retain control through super voting shares.

Recommendations and Personal Insights

  • Speaker B recommends Michael Lopp's blog and his piece "The Situation" for tech and engineering leaders.
  • Speaker A shares an Airbnb find, the book "Daily Rituals," which explores the routines of famous artists and thinkers.
  • Both speakers share how these recommendations provide valuable insights into leadership and creativity.

"There's a guy named Michael Lopp who was a longtime engineering manager at Apple and then Pinterest, and now I believe he runs engineering at Slack and he writes under the pseudonym rans." This quote provides a recommendation for Michael Lopp's blog, which offers valuable insights and advice for leaders in the tech and engineering fields, drawing from Lopp's experience at notable companies like Apple, Pinterest, and Slack.

What others are sharing

Go To Library

Want to Deciphr in private?
- It's completely free

Deciphr Now
Footer background
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon

© 2024 Deciphr

Terms and ConditionsPrivacy Policy