ARM Holdings develops intellectual property (IP) used in silicon chips. It was founded in 1990 as a spinoff of British computer manufacturer Acorn Computers. The first time ARM designs were used in a cell phone was in 1994 for the Nokia 6110.
Semiconductor manufacturers combine ARM IP with their own IP to create complete chip designs. Chips containing ARM IP power most of today’s mobile devices, due to their low power consumption. In 2014, 60% of the world’s population used a device with an ARM chip on a daily basis.55 In 2012, 95% of the chips found in smartphones and tablets were ARM designs.
ARM licenses IP to over 1,000 global partners (including Samsung, Apple, Microsoft). The company doesn’t manufacture or sell chips, unlike semiconductor manufacturers such as Intel or AMD.
SoftBank purchased ARM in 2016 for £24.3 billion.
Detect and Solve Difficult Problems
ARM recognizes that tablets, laptops, and smartphones are the next wave of technology. To create attractive chips and intellectual property for portable devices, ARM focuses on faster processing speeds, lower power consumption, and lower costs.
Invest Heavily in R&D
In 2018, ARM invests $773 million in R&D (42% of 2018 revenues). ARM is able to incur R&D costs many years before revenue starts (eight years on average). In 2008, ARM’s R&D expenditure was £87 million or 29% of revenues. Expenditures continue to grow over time.
ARM earns fixed upfront license fees when they deliver IP to partners and variable royalties from partners for each chip they ship that con- tains ARM IP. The licensing fees vary between an estimated $1 million to 10 million. The royalty is usually 1 to 2% of the selling price of the chip.
Scale without Manufacturing
Licensing enables ARM to scale the business efficiently. Designs can be sold multiple times and reused across multiple applications (e.g., mobile, consumer devices, networking equipment, etc.). ARM has no manufacturing costs.