ARM is the hidden ingredient in many mobile devices and earns growing revenues from technology licensing deals
Unheard of by many of us, 20 year-old ARM plays a pivotal role in an increasing range of products. From mobile phones, printers and laptops to cars and washing machines, ARM technology is at the heart of many of the digital products on the market. What is unique about this UK-based company is that it does not make anything – it has no production facilities. Instead it designs the chips that an increasing array of manufacturers chooses to use in their products. From the iPhone, where ARM designed chips are in every one, to tablet PCs, companies choose ARM designs because they perform better and use less energy than most of the alternatives.
ARM’s business model is one that works for the company as much as it works for its customers. Investing, over a third of revenues on R&D with an expert team of 1200 chip designers, ARM is able to keep pushing the boundaries of chip design forward and so creates the intellectual property that will drive the next generation of products. ARM licenses these designs to manufacturers through a combination of up-front ‘access’ payments to use the design and an ongoing royalty fee on every chip produced based on an ARM design: “By designing once and licensing many times, ARM spreads the R&D costs over the whole industry and thereby helps make digital electronics cheaper.” Over 90% of all chips used in mobile phones in 2011 were ARM designs! With Apple likely to switch all Macs to ARM designs over the next couple of years and others taking similar views, many see that the corporate goal of having over 50% of the mobile PC market by 2015 is both credible and probable.