Arm's instructions for chip production have made it the dominant global chipmaker and the technology behind nearly every smartphone on the market. Apple, Nvidia, Google, Microsoft, Amazon, Samsung, Intel and Taiwan Semiconductor Manufacturing Company are a few of the companies that license Arm architecture for their CPUs, and it collected royalties on more than 30 billion processors in 2020. This success has allowed it to go public with a market value of $54 billion, though its first post-IPO earnings report saw its shares drop 7% when revenue guidance fell short of expectations.
Bob O'Donnell from TECHnalysis Research explains the significance of Arm's technical prowess: "Most don't realize the company behind the chip, but once you do understand what they do, it's absolutely amazing the influence they have." Arm's low-power chip architecture has seen a surge in adoption lately, as evidenced by Apple's custom processors in Macs, Amazon Web Services' custom server chips and Qualcomm's Snapdragon chips.
Despite risks such as struggling smartphone sales and geopolitical issues, Arm remains the biggest IPO of the year. CNBC visited its UK headquarters to learn how it managed this feat.
Arm was established in 1990 by a dozen chip designers based in a turkey barn in Cambridge. Initially, it was a joint venture between Apple, Acorn Computers, and VLSI Technology (which is part of NXP nowadays). Arm's major breakthrough took place in 1993 when Apple introduced its early portable Newton device with the Arm610 processor. Haas remarked that it exhibits the "hallmarks" of the firm. "We started by running a device utilizing a battery that had to be inexpensive," he remarked.
In 1996, Arm established a pact with Texas Instruments, the outcome of which was processor being lodged in early Nokia mobile phones and the start of its journey to becoming the leading smartphone architecture it is today. The year 1998 marked the company's first time going public and at the occasion Chief Architect Richard Grisenthwaite was present. “We were around 100 people back then and I have witnessed the firm's amazing transformation from targeting a single market to reaching out to a variety of computing environments”, said Grisenthwaite. True enough, Arm was quick to expand in the 2000s and the advent of touchscreen phones in 2007 as well as connected home devices in the 2010s only served to reinforce the growth. Globally, Arm currently stands at 6,500 employees with the majority of them based in the UK and few scattered in the USA, Norway, Sweden, France and India. SoftBank of Japan took the reins in 2016 by purchasing Arm for $32 billion. As President of the IP Products Group, Haas spearheaded the diversification into emerging markets such as AI. “PC & phone, automotive, data centre and IoT are the primary areas that we catered to, and each of these has AI incorporated in some way”, he stated. Arm is in possession of 6,800 patents and another 2,700 applications waiting to be accepted. This has been largely attributed to its Neoverse line which caters to high-performance and cloud computing and since its launch in 2018 has been an integral part of Arm diving headfirst into AI. In August of last year, Nvidia and Arm announced their Grace Hopper Superchip, a combination of Nvidia's GPUs with Neoverse cores. Grisenthwaite further adds, “By bringing these elements together, Nvidia has attained something with a power to performance ratio 2-4 times more than an x86 system”.
Two years ago, Nvidia was very eager to acquire Arm from its owner, Softbank. This would have been accomplished through a $40 billion transaction. However, it was blocked by authorities and also some of Arm's major customers, which also happen to be Nvidia's competitors. Haas (the Nvidia CEO) expressed his disappointment that it didn't close, given the amount of time they invested in the deal. Consequently, Softbank made the decision to take Arm public again and Haas was appointed as the CEO.
This past September saw Arm's second public debut, with its stock rising by nearly 25%. However, its shares have since dropped significantly. The emergence of the free, open-source architecture RISC-V, with its notable supporters such as Google, Samsung and Qualcomm, has posed a risk to Arm's position. According to Futurum Group CEO Daniel Newman, RISC-V is currently a low risk competitor which is a few years behind Arm, but could become more dominant in the IoT and low power markets. Arm's major adversary is Intel's x86 architecture, which is widely used for personal computers and has a vast amount of software specifically designed for it. Michael O'Donnell of PCMag pointed out that Intel's success with x86 is largely due to its strong backing of software support. Nevertheless, the server market is beginning to shift away from x86 as software is increasingly being broken into parts, resulting in easier implementation on architectures like Arm. For example, Amazon Web Services has released its Graviton chips to compete against the x86 CPUs offered by AMD and Intel, demonstrating Arm's ability to develop servers, PCs and smartphones.
Apple, in 2020, moved away from the Intel x86 processors that had powered their Mac computers for 15 years to their own Arm-based processors. They backed up this decision by revealing their newest line of M3 processors and the MacBooks and iMacs running on them, which Apple claimed would give up to 22 hours of battery life. This shift from Intel to Arm created many questions about what the future of the Intel-Apple relationship would look like. To preempt this, Apple extended its deal with Arm through at least 2040 in September.
Qualcomm is another major customer using Arm technology for its own PC processors, though the relationship between them is tense. This is due to Qualcomm acquiring CPU company Nuvia in 2021 and Arm suing Qualcomm over the right to make certain chips with its technology. This dispute is set to go to trial in 2024.
Arm is also making a jump into the automotive space, with its chips being used to power self-driving capabilities. Grisenthwaite from Arm calls self-driving “one of the most computationally intensive tasks we've ever seen on this planet” and believes they need to provide a platform to make it easier for the world's software developers to concentrate on this.
The simplification of chip design is also making Arm the choice for non-chip companies like Apple, Amazon, Google and Microsoft creating their own custom silicon. O'Donnell from Arm states that they need to make the design process simpler for these companies since they have a much smaller team than those entire companies built on the work of chip design.
The current chip shortage has caused anxiety as over 90% of chips are produced in Asia, and China and the U.S. have both implemented export restrictions. Arm's CEO, Haas, commented, "We comply with all export regulations, and China is a significant market for us- around 20%. In the past, our Chinese business has mainly revolved around mobile devices, but now it is focused on data centers and automotive". Arm established Arm China in 2018, majority-owned by Chinese investors. Unfortunately the CEO, Wu, was dismissed and later refused to leave, sparking controversy. Recently, some ex-Arm China employees created a Chinese chip design firm with backing from the Shenzhen government. As a result, Arm's shares dropped 5%. O'Donnell commented that Arm is not immediately at risk as many Chinese firms have long-standing relationships with Arm and it would take years to build the software for a new architecture. Nevertheless, Arm experiences some difficulties due to the slump in smartphone sales, and labor shortages which TSMC attributes to a lack of skilled workers for its $40 billion fab in Arizona. Haas concluded, "There's no way that demand for semiconductors in the next 10 to 15 years will abate. It's only going to increase, so it's a pretty fierce talent war".
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