Apple may well have started a new relationship with Intel by using the latter's microprocessors in its iconic iMac range, but it certainly doesn't believe in putting all its eggs in one basket.

The latest news indicates that the technology major, riding a new wave of success following the tremendous response to its iPod and iPhone ranges, has decided to buy a boutique microprocessor design firm called PA Semi to service its profit-making lines.

The Santa Clara-based company, founded in 2003,  is known for its design of sophisticated, low-power chips based on the PowerPC architecture, which Apple recently abandoned for its computers in favor of Intel chips.

This acquisition will spell disappointment for Intel, which has been trying to convince Cupertino, California-based Apple to rely on Intel's chips, particularly its latest low-power line up, called Atom.

Analysts say PA Semi's chips could someday conceivably power the iPhone and iPod.

Led by CEO Paul Otellini, Intel is developing a line of chips that it believes can become as central to hand held computing devices as its "x86" or Pentium chips have been to the personal computer industry. Intel has said it aims to create somewhat different lines of Atom processors tailored to different classes of applications, such as consumer devices, low-cost notebook computers and set-top boxes. The first of these designs is slated to begin shipping by the middle of this year; another by year's end.

Apple spokesman Steve Dowling said that Apple bought smaller technology companies from time to time but did not comment on its purposes and plans.  He declined to comment on the value of the deal, which a person familiar with the deal suggested was done for $278 million in cash.

Dan Dobberpuhl founded PA Semi in 2003, and is well regarded in the microprocessor world for having spearheaded several innovations in the field. His current team includes engineers who had a hand in designing powerful chips, including Intel's Itanium, Advanced Micro Devices' Operton and Sun Microsystems' UltraSparc. He was also the lead designer on a DEC chip project called StrongARM, which was ultimately folded into Intel after DEC collapsed. Intel tried to use the design as the basis of chips for the smart-phone industry, but eventually sold that group to Marvell.

Apple has had previous interactions with PA Semi three years ago, to develop a powerful chip with low power consumption. However, when it shifted allegiance from the PowerPC architecture in which the smaller company specialized, discussions came to a halt. Now, Apple seems to have had a change of heart, and is interested in the PowerPC architecture once again.

PA Semi has been working on microprocessors that are extremely energy efficient. In February last year, the company announced a new dual-core processor that reportedly boasted 300 percent more efficiency than comparable chips. It appears Apple won't be rolling out any products with PA Semi chips until next year.

As for the reasons as to why Apple is spending $278 million for a chip company without a fabricating facility, analysts find many. One is product differentiation for the iconic iPhone. Sure, it may have been a roaring success with its appealing design and intuitive touch screen interface, but competitors are not behind. Many manufacturers have already released similar devices and the largest in the world, Nokia, has just announced its counterpart to the iPhone. (See: Nokia unveils plans for competitor to iPhone, the Tube 5800)

Hence, the decision to centre the iPhone design around a chip that Apple could own, which marks a significant strategic choice by Apple CEO Steve Jobs, and is aimed at ensuring Apple can continue to differentiate its flagship phone as a raft of competitors flood the market. Of course, the intellectual talent at the smaller company is also worth paying top dollar for, analysts opine.

Another reason behind the acquisition, analysts believe, is the renewed interest in low-power processors for portable devices - not only portable music players and mobile phones, but other futuristic applications as well, one of which is rumoured to be the much-awaited Apple TV. Also, the importance of Apple's reluctance to depend entirely on Intel for all its microprocessor needs cannot be undervalued.

However, this buyout may run into problems from unexpected quarters. The US Department of Defense (DoD) may be a vocal opponent of this deal, considering that PA Semi's PWRficient processor is designed into DoD programs in every major branch of the armed services, and that it has announced that it can no longer guarantee delivery post acquisition.

PA's 64-bit chip was adopted by the military more rapidly than usual because of its power saving features. It got a lot of praise from analysts when it announced its PA6T-1682M in February 2007 because the dual-core 64-bit PowerPC variant consumed as little as 15W while running at up to 2 GHz. Cards using the chip delivered significantly greater performance than their competitors while shaving power consumption by as much as 30 per cent.

Only a few days back, when talks with Apple were at an advanced stage, PA Semi informed its customers it was being acquired and it could no longer guarantee supplies of its chips. The startup did not identify the acquiring company but said that company may be willing to supply the chip on an end-of-life basis, if it could successfully transfer a third-party license to the technology.