UK chip design firm Arm provides Japanese conglomerate SoftBank with a font of intellectual property, and a glimpse into the technological future.
SoftBank acquired Arm Holdings in 2016. Its chip designs are at the core of most smartphones and a growing number of other devices. The firm does not manufacture chips; rather it solely develops the computer coding for their construction. Its clients, including hardware giants such as Apple and Huawei, as well as chip makers Broadcom and Qualcomm, pay Arm licence fees to access their design code, then pay royalties on every product they ship containing the resulting chips. Since Arm’s founding in 1990, its customers have sold some 130 billion chips based on its designs.
For SoftBank, Arm delivers high margins and rapid growth. It also provides a glimpse into the technological future – SoftBank founder Masayoshi Son calls the firm his “crystal ball”. To keep its design pipeline full, Arm must continually predict where the computer industry is heading. It does so through ongoing discussions with big customers from a range of sectors. These companies anticipate their computing requirements years in advance, then work with Arm to build them.
Arm currently has a dominant position in the smartphone market, and is expanding into other technology markets. SoftBank is directing Arm to make this its primary aim, specifically by lowering its profits in favour of growing revenue and reinvesting. Son sees Arm becoming more valuable than Google by selling intellectual property (IP) as connected devices proliferate through the Internet of Things (IoT). Accordingly, in 2017 Arm’s profits fell to £325 million on revenues of £1.3 billion, from a profit of £539 million on revenues of just over £1 billion in 2015.
Especially promising is the automotive market, in which Arm presently has a 20% share. It started designing in-car processors in 1996, and expects many more of the processors it licenses will be used in cars. Fully autonomous vehicles are still miles from mass production. However, as manufacturers race to pack more technology into their cars, investment in autonomous computation is high. Arm estimates that autonomous vehicles will require 10 times more computing power than smartphones, and that cars could become as big a market for chip design as phones, which account for 60% of its annual revenues.
Another promising area is network equipment, according to The Economist. As the costs of storing and processing data fell, the cost of managing the resulting traffic soared. Arm sees a future need for more machines that manage data efficiently and keep networks secure. Other, more embryonic areas in which Arm is engaged hint at potential future technologies, such as chips that can harvest the energy they need to run from the environment around them. Such concepts tend to originate in academia. Arm’s business is to design them into reality.
For a company whose purpose is intellectual property, hiring, retaining and developing talent is paramount. In fact, the revenue being reinvested into Arm is going mainly to hiring. Arm has added 1,800 people since being acquired by SoftBank, increasing its headcount by half. It plans to add more. As part of winning permission to buy Britain’s biggest tech firm, SoftBank was required to sign contracts promising to increase Arm’s headcount, thus ensuring the firm can continue to bring future technologies into being.
