I’ve been talking about the enormous amount of cash it takes to create any kind of chip company and expressing doubts about the number of startups we will see getting financial backing to create truly innovative ideas in semiconductors. Analyst Linley Gwennap apparently feels the same way, because he looked at the sale of P.A. Semi to Apple and the recent sale of Montalvo to Sun (likely for less than the $73 million it raised) and concludes:

“The Apple deal will double the $126 million invested in P.A. Semi, a positive return but modest by VC standards. With the possible exception of RMI (which predates Dobberpuhl’s company), we expect P.A. Semi will be the last processor startup to generate a positive exit after such sizable funding. Montalvo will probably be the last processor startup to even raise that kind of money. Microprocessors have become a big-boy game; newcomers need not apply.”

As the last big microprocessor startup standing, Raza Microelectronics (RMI) was the brainchild of Atiq Raza, who formed a company that was later bought by AMD and turned into one of the company’s core microprocessors. RMI has raised more than $120 million to build communications and networking processors. I don’t want to believe it’s the end of startups trying their hand against the likes of AMD or Intel, but until we come to a breakthrough in materials, ways to reduce the IP hurdles or the cost of masks and design, entrepreneurial chip engineers will have to focus on power managment and cooling, MEMS and RF.

Apple has acquired PA Semi, microprocessor design firm for $278 million in cash, reports Forbes’ Erika Brown. PA Semi was started by Dan Dobberpuhl, a chip designer closely associated with Alpha and StrongARM chips developed by Digital Equipment.

The decision to center the iPhone design around a chip that Apple could own marks a significant strategic choice by Apple Chief Executive Steve Jobs, and is aimed at ensuring Apple can continue to differentiate its flagship phone as a raft of competitors flood the market. According to a source affiliated with the chip company, Jobs and Senior Vice President Tony Fadell led the tiny group of executives who spearheaded the acquisition, which included negotiations that took place in Jobs’ home.

Apple’s decision is going to post a problem for Intel Corp. and its newly announced Atom chip. It is unlikely that Intel’s chip was going to find room in the handsets made by some of the larger players.

Chip industry insiders believe that Intel was betting on an Apple win to gain scale for Atom which in turn would allow it to dominate the “portable internet device” market. iPhone and iPod Touch are the early leaders in the PID category, and are unlikely to cede that spot for near foreseeable future.

PA Semi had designed a 64-bit dual core chip that consumer between 5-to-13 watts running at 2 gigahertz, making it a good chip for the PID category. So far, PA Semi has found takers in telecom equipment makers.

Beyond3D puts context on the news announcement. While they are mostly right about everything, I don’t think you can rule out the iPhone argument.