① The chip architecture service provider Arm plans to increase the licensing fees for its latest architecture by up to 300% and compete with customers by producing its own chips; ② Its customers include Apple, Qualcomm, and Microsoft, and its chips are widely used in portable devices; ③ Arm's self-developed chips may compete with its major clients, and analysts believe this will send shivers down the spines of its customers.
On January 14, the Financial Association reported (Editor: Ma Lan) that although $Arm Holdings (ARM.US)$ in the wave of chip demand driven by AI, it has benefitted significantly, but the gains have fallen far short of expectations, prompting it and its parent company Microsoft to consider other strategies for breakthrough.
According to a recently disclosed court document, Arm is formulating a long-term Global Strategy to raise the licensing fees for its latest architecture Armv9 by up to 300% and is beginning to design its own chips to compete with its major clients.
Due to low cost, low power consumption, and low heat generation, chips based on the Arm architecture have always been favored by portable devices. Its major clients include $Apple (AAPL.US)$ 、 $Qualcomm (QCOM.US)$ and $Microsoft (MSFT.US)$ Such companies, these customers design and manufacture their own chips using Arm's instruction set architecture, mostly used in Smart Phones, tablets, and laptops.
Over the past few decades, Arm has maintained a low profile in the industry. Although it plays a crucial role in the Smart Phone and high-efficiency Datacenter sectors, its revenue is comparatively negligible relative to the customers paying patent fees. The company's revenue for 2024 is only $3.23 billion, while Apple's revenue from Hardware products alone is more than 90 times that of Arm.
Sharpening knives against customers
According to the documents, in 2019 $Arm Holdings (ARM.US)$ At that time, the CEO Simon Segars proposed a project called "Picasso," hoping to significantly increase the patent fee rate to utilize existing Technology and boost annual revenue of the Smart Phone business by about 1 billion dollars within ten years.
However, the problem is that major clients like Qualcomm and Apple are already very mature in chip design, capable of designing their own chips from scratch using Arm's architecture without needing to purchase ready-made products from Arm, which means Arm's price increase plan cannot genuinely grasp these customers.
This also encourages Arm to shift its thinking, such as developing its own complete chip designs. Arm's current CEO, Rene Haas, stated that Arm should not only sell chip blueprints but should also sell chips or chipsets. He is very confident in this business prospect, believing that once Arm's chips are released, they will compete with their own customers.
This indeed poses a threat to Arm's customers. In October 2022, SoftBank's CEO, Masayoshi Son, and Haas met with executives from the tech giant Samsung and revealed that Arm's licensing to Qualcomm will expire in 2025. Subsequently, Samsung expressed concern to Qualcomm, believing that Qualcomm might not be able to consistently supply chips to Samsung.
Qualcomm's CEO, Cristiano Amon, confirmed the situation, stating that he assured Samsung that Qualcomm's Arm license would remain valid until 2033. However, despite this assurance, Samsung later shortened its three-year chip supply agreement with Qualcomm to two years.
From Qualcomm's experience, if Arm is determined to develop chips on its own, companies including Apple will have to start assessing how much longer their Arm licenses can provide benefits, as well as the cost pressures if Arm chips are adopted.
Prakash Sangam, founder of consulting firm Tantra Analyst, commented that Arm considering launching its own chips is big news, which should send shivers down the spines of its customers.
Editor/Rocky
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