FRANKFURT (Reuters) - Dialog Semiconductor expects revenues to grow in the mid-teens after a $600 million deal with Apple to transfer patents and programmers key to making the iPhone’s main power chip.

Dialog semiconductor logo is pictured at a company building in Germering near Munich, Germany August 15, 2016. REUTERS/Michaela Rehle

The landmark deal buys time for the Anglo-German chip designer, which relies on Apple for three-quarters of sales, to reinvent itself as a more diversified firm that will target new markets such as the Internet of Things.

With Apple’s latest iPhones and iPads packing Dialog chips, there will be continuity until next year’s launch cycle, securing overall revenues in 2019 on a similar level to this year’s expected $1.46 billion.

“We are not going to fall off a cliff,” Chief Executive Jalal Bagherli told Reuters in an interview. The longer-term forecast for revenue growth in the mid-teens applies to the Dialog operations not covered by the Apple deal.

Dialog’s shares jumped by a third on Oct. 11, the day of the Apple deal. They gained another 7 percent following the strategy update, extending their rally on the back of Wednesday’s forecast-beating third-quarter results.

Bagherli was due to hold a strategy briefing with analysts in London on Thursday and ahead of the event the company provided its first guidance on its outlook for 2019. The Apple deal will not have any impact on the current year.

With the proceeds from the deal adding to the $617 million already on hand, Bagherli said Dialog would seek to grow through mergers and acquisitions.

He said that Dialog was looking at several potential targets to supplement its existing strengths, but would exercise financial discipline. “We are not looking at acquisitions that require massive leverage,” he told Reuters.

Around half of the proceeds of the Apple deal would go towards running the business, leaving the remainder, plus cash on hand, free for takeovers or share buybacks. Dialog said on Wednesday it would spend up to 150 million euros on buying back nearly a tenth of its shares.

STABLE MARGINS, NEW PRODUCTS

Dialog’s longer-term guidance telegraphed a message of continuity. The company expects underlying gross margins of between 47 and 48 percent, a fraction below its third-quarter performance of 48.6 percent.

It sees its underlying operating margin at between 18 and 23 percent, compared to a third-quarter outturn of 21.8 percent.

Dialog, which has no chip production assets of its own, is more tied to the fortunes of Apple than it is to the broader semiconductor industry cycle, where Korean electronics giant Samsung Electronics has warned that a two-year boom in memory chips could be ending.

It wants to shake off that image by deploying its expertise in so-called mixed-signal integrated circuits - which can handle both analogue and digital signals - to capture new market opportunities.

Dialog claims market leadership in rapid-charging and configurable chips that are used, for example, to power up smartphones. It is number two in Bluetooth low-energy products that connect wearable devices like fitness trackers.

Bagherli said he saw new opportunities in the Internet of Things that comprises connected ‘smart’ devices, such as Bluetooth-enabled styluses for tablets or for tyre-pressure monitors.

Dialog is also talking to pharmaceutical companies about designing chips for devices such as insulin pumps and glucose meters, part of an e-healthcare trend where patients can self-medicate while their condition is monitored remotely.

Another new product area Dialog hopes to move into is gaming consoles, whose power-management demands are similar to those of smartphones or tablets, Bagherli said.