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CyberSource Peak Season Fraud Management Guide

That Gleam in Apple's Eye May Be for Anobit

That Gleam in Apple's Eye May Be for Anobit

If it's true that Apple plans to acquire Anobit, a maker of embedded flash technology, it might represent a new approach to its efforts to control the supply chain, said Yankee Group analyst Carl Howe. It would indicate "that Apple has now moved into the next phase of that supply chain strategy -- it not only buys up the parts supply, but it's buying the company that makes those parts."

By Richard Adhikari MacNewsWorld ECT News Network
12/13/11 3:11 PM PT

Apple is deep in negotiations to purchase embedded flash controller maker Anobit, according to a report in Calcalist.

Cupertino is said to be offering between US$400 million and $500 million.

If the story is true, the deal would make strategic sense for Apple, Brian Marshall, an analyst at the ISI Group, wrote in a note to investors.

However, the rumored purchase will have little effect on the flash industry, Paul McWilliams, editor of Next Inning Technology, told MacNewsWorld.

"Marvell has 70-to-80 percent of the market for flash controllers," McWilliams said. "Anobit is a rounding error in this situation -- it's too small to worry about."

Neither Apple nor Anobit responded to our requests to comment for this story.

What's An Anobit?

Anobit, which was founded in 2006, makes flash memory controllers used by flash manufacturers, consumer electronics vendors, and storage system providers. It's headquartered in Israel, and has subsidiaries in the United States and Korea.The company has raised a total of $76 million from various backers. It has filed 95 patents, of which 21 have been granted.

Anobit's key asset is its embedded consumer flash controller technology -- MSP, or memory signal processing -- according to ISI's Marshall.

With MSP, Anobit competes against Marvell and LSI Logic, which recently purchased SandForce for about $370 million, he noted.

Why Apple Might Lust After Anobit

Apple's possible acquisition of Anobit would be in line with its philosophy of vertical integration and its use of Anobit's technology.

Cupertino purchased two chipmakers in two years, first PA Semi for about $280 million in 2008, then Intrinsity in 2010.

If Apple were to purchase Anobit, it would be "to have flash controller technology in-house and to remove it from the hands of competitors who might be using it today, such as Samsung," Marshall told MacNewsWorld.

Planning for the Future

"Apple uses its supply chain to gain competitive advantage," Carl Howe, a director at the Yankee Group, told MacNewsWorld.

It prepays suppliers for parts and so gets the best price and delivery position for them, resulting in "all other manufacturers seeing huge shortages of those parts in some cases because Apple has, in essence, locked up the majority of part production in advance," Howe explained.

For example, in 2005, Apple disclosed that it had agreed to prepay Samsung and other flash suppliers more than $1 billion to guarantee flash shipments through 2010.

If the report about Cupertino's plans to purchase Anobit is true, it would indicate "that Apple has now moved into the next phase of that supply chain strategy -- it not only buys up the parts supply, but it's buying the company that makes those parts," Howe remarked.

With Apple's war chest of $80 billion and "a dramatically growing worldwide market" for products that use flash memory, an outlay of $500 million "would be cheap insurance to guarantee that Apple can sell and deliver those parts," he pointed out.

Into the Future With the Flash

Apple's also using Anobit's technology, but does so differently from other companies.

"Right now, we package up NAND flash and a flash controller and put them in a box that looks like a hard disk drive," Next Inning's McWilliams said. "Apple was the first company to take NAND flash chips, put them on its motherboard, and use controller chips to make that look like a drive."

That's the direction toward which NAND Flash will evolve, McWilliams predicted.

"There's no reason for flash drives to look physically like a solid state drive," he elaborated.

No Permanent Enemies in Business

Apple is the world's largest purchaser of flash memory.

Samsung, meanwhile, makes about 30 percent of the world's NAND flash.

However, Apple's rumored purchase of Anobit, if true, probably won't impact Samsung significantly.

"Apple probably consumes 35 percent of flash made worldwide, so it partners with all flash vendors, including Samsung, Toshiba, Hynix and IMFT, the joint venture between Intel and Micron," ISI's Marshall pointed out.


CyberSource Peak Season Fraud Management Guide
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