Bethel Finance: Apple to buy Anobit for $350-400m

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Bethel Fiannec news:
Apple Inc. (Nasdaq: AAPL) will acquire Israeli start-up Anobit Ltd. for $350-400 million. The deal comes as Apple is about to set up a processor development center in Israel, although the two issues are unrelated. "Globes" named Anobit Israel's third most promising start-up for 2011.

The acquisition of Anobit is an unusual step by Apple, currently considered the world's leading computing company. It has a market cap of $365 billion, and analysts expect it to report $140 billion revenue for 2011. Apple does not make many acquisitions. It has $80 billion in cash, but its mergers and acquisitions pale compared with its computing peers. The company has little hardware operations, and its acquisitions in this field can be counted on the fingers of one hand.

Anobit has developed flash controllers for devices, which are reportedly already embedded in Apple's iPads and iPhones.

Anobit chairman Ehud Weinstein and president Ariel Maislos cofounded the company. Maislos was cofounder and president of Passave, which was acquired by PMC Sierra Inc. (Nasdaq: PMCS) for $300 million in 2006, and Weinstein cofounded Libit, which was acquired by Texas Instruments Inc. (NYSE: TSX) for $365 million in 1999.

Apple's Israeli development center will be the company's first such center outside the US, and will reportedly be led by high-tech veteran Aharon Aharon.

The sale of Anobit is not unusual for its investors, and it will yield them a handsome return. The company has raised $77 million to date. Anobit's investors include Pitango Venture Capital, Battery Ventures, Micron Ventures, Intel Capital, founders, and strategic investors. They will make a 4-5 fold return on their investment in a fairly short time.

Anobit's relationship with Apple is indirect. In August, Anobit announced two cooperation agreements with South Korea's Hynix Semiconductor Inc. (KRX: 00660) and Samsung Electronics Co. Ltd. (KSX: 5530). Hynix is the world's largest supplier of flash memory processors, and is apparently responsible for the integration of Anobit's solutions, which lower the flash memory costs for smartphones, digital cameras, and tablet computers, such as Apple's iPhones and iPads. Anobit has never reported any collaboration with Apple.

Anobit reportedly had $30-40 million in sales this year, and it needs additional capital to boost production of its products. Its executives originally planned an IPO in 2013. The company had planned to hold another financing round to raise considerable capital from strategic investors in the flash memory industry. Apple may have entered the picture here, and went on to acquire the company.

Anobit has two product lines: NAND-based embedded flash controllers for smartphones, music players, tablets, and other products; and flash memory Genesis Solid State Drives (SSD), which are designed to replace computers' magnetic hard drives that are the current memory mainstay of PCs and storage systems, such as those developed by IBM Corporation (NYSE: IBM) and EMC Corporation (NYSE: EMC).

Apple's acquisition of Anobit probably means that it will give up its enterprise business, in which it has invested heavily in the past two years. Although this business has not yet gotten off the ground, it has high growth potential, with Gartner Group estimating that it will grow by several hundred percent over the next few years.

The acquisition of Anobit will help Apple in the market for flash memory for PCs and mobile devices. The acquisition might also help Apple in an intellectual property lawsuit over mobile phones against Samsung Electronics the world's largest manufacturer of PCs, and an Anobit customer. Apple's acquisition of Anobit's intellectual property will undoubtedly give it a technological edge.

A few months ago, Maislos told "Globes", "We want to build a successful company that can grow. Our goal is to be embedded in as many computer systems as possible."

This was not Maislos's first remarks against early acquisitions. At a conference in April, he said, "We don’t see our acquisition as strategic. I don’t believe in building a company with a sign 'Buy me'. That's suicide. The public market is tough, it's a long and hard road, and a company loses a lot of its freedom. We' build the company privately as much as possible, and we'll move forward with an IPO or private equity funding."