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Bad News for Intel: Apple Buys P.A. Semi

Acquisition of boutique chip maker means the company's own chips could be in iPhones and iPods.
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Apple

(AAPL) - Get Apple Inc. Report

has reportedly agreed to purchase microprocessor design company P.A. Semi, according to China's

Xinhua news agency

and a story on

Forbes.com

.

The stories quote Apple's Steve Dowling as saying that P.A. Semi is known for its design of sophisticated, low-power chips, which will be used in future iPhones and maybe iPod products.

"Apple buys smaller technology companies from time to time, and we generally do not comment on our purposes and plans," according to Dowling. He wouldn't comment on the exact price paid -- but it is rumored that it is costing Apple $278 million dollars in cash.

Apple Chief Executive Steve Jobs and Senior Vice President Tony Fadell reportedly led the tiny group of executives who spearheaded the acquisition, which included negotiations that took place in Jobs' home.

Cramer: A Bull Case for Apple

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P.A. Semi is a 150-person boutique chip company, based in Santa Clara, Calif., that was founded in 2003 by Dan Dobberpuhl, a lead designer for Digital Equipment Company's Alpha and StrongARM microprocessors developed by in the 1990s.

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The new, power-efficient Power Architecture chip is called PWRficient. It is based on the PA6T processor core -- the first to be designed from scratch outside the AIM (Apple,

IBM

(IBM) - Get International Business Machines Corporation Report

,

Motorola/Freescale

(MOT)

) alliance in a decade.

Apple's purchase could be very bad news for

Intel

(INTC) - Get Intel Corporation Report

. The industry leader had been trying to convince Cupertino, Calif.-based Apple to rely on Intel's chips -- particularly its newest low-power processor, called the Atom.

Apple had been a big user of Power Architecture chips before switching from PowerPC to Intel chips in its Mac computers a few years ago. There had been rumors that Apple would have been the first user of PWRficient processors before the move to Intel.

Gary Krakow is TheStreet.com's senior technology correspondent.