Arm Holdings is making bold moves in the semiconductor sector to enhance its revenue and market power. The company plans to raise royalty rates for certain chip designs by as much as 300%, aiming to generate an extra $1 billion every year over the next ten years. This effort, called the “Picasso” project, centers on the new Armv9 architecture and targets clients that utilize off-the-shelf chip designs.
Revenue Comparisons
In the fiscal year 2024, Arm reported revenue of $3.23 billion, which is quite small compared to that of major clients such as Apple. In fact, Apple’s earnings from devices powered by Arm technology are more than 90 times greater. To close this gap, Arm is pondering a major transition by starting to design and produce its own chips. Should this happen, Arm would be competing directly with its biggest clients like Qualcomm and Apple.
Potential Risks
The idea of entering the chip manufacturing arena has sparked concerns among both customers and industry analysts. Arm’s potential chip offerings include chiplets, which are tiny components that can be combined into larger processors. However, this approach risks alienating essential customers, who might retaliate by creating their own chips and leaning less on Arm’s existing solutions. Qualcomm has already begun to lessen its dependency on Arm’s technology.
Arm has been looking into these strategies since 2019, as revealed by internal discussions and court records. CEO Rene Haas has been quite vocal about the need for change, showing frustration with the company’s heavy reliance on major clients and advocating for more control over its technology.
Support and Challenges
SoftBank Group, which holds 90% of Arm, has backed these ambitious expansion plans. Nevertheless, the strategy is not without challenges. Increasing royalty rates and going head-to-head with clients could disrupt long-term relationships. Additionally, Arm is up against rival chip designers who might take advantage of any dissatisfaction among current customers.
In a recent legal battle, Arm accused Qualcomm of violating licensing agreements, but a jury in the U.S. sided with Qualcomm. This outcome might encourage other customers to consider options outside of Arm’s technology.
While Arm’s new plan seeks to transform the semiconductor landscape and increase revenue, its success hinges on balancing growth with the need to keep customer trust intact. The company’s daring ambitions could reshape its position within the industry, but they also involve considerable risks.
