In San Francisco, Arm Holdings, a technology supplier to chip firms, is working on a long-term strategy to increase prices by up to 300% and has explored creating its own chips to compete with its major clients. Despite its substantial role in the chip industry, Arm has maintained a low profile, licensing intellectual property to tech giants like Apple and Qualcomm for chip design. However, Arm’s annual revenue of $3.23 billion for fiscal-year 2024 pales in comparison to its clients, like Apple, whose revenue from Arm-based products dwarfs Arm’s. CEO Masayoshi Son of SoftBank Group, which owns 90% of Arm, along with Arm CEO Rene Haas, are aiming to change this dynamic. Plans disclosed in a recent trial, seeking higher royalty rates from Qualcomm, unveiled Arm’s ambitious initiatives that have not been previously reported.
Referred to as the “Picasso” project in its early stages, Arm’s plans, dating back to at least 2019, aim to boost smartphone revenue by about $1 billion annually over a decade by raising royalty rates for chip designs utilizing its latest computing architecture, Armv9. In discussions during the trial, documents revealed an intended 300% rate hike in 2019. Despite these plans, key clients like Qualcomm and Apple may not be as affected by the price increases as they are capable of designing their own chips using Arm’s architecture. Arm’s potential move towards developing complete chip designs could also unsettle its customers.
After SoftBank’s acquisition in 2016, Arm expanded from smartphones into PC and data center markets. Discussions among Arm executives hinted at the possibility of moving towards creating its own chip designs, a development that caused concern among industry experts. Testimony and trial documents showed Arm CEO Rene Haas proposing a shift in Arm’s business model during a presentation to the board in 2022. The potential move towards developing its own chip designs could have significant implications for Arm’s relationship with its clients.
Arm is considering expanding its offerings beyond blueprints by potentially selling chips or chiplets, smaller building blocks used in the production of processors by companies like Advanced Micro Devices. In a recent development, Arm’s Chief Executive Simon Segars revealed that the company is exploring the possibility of introducing its own chip into the market, a move that could potentially pit Arm against its own customers.
In a revealing exchange, it was disclosed that Arm’s president, Rene Haas, had expressed confidence in the company’s ability to compete directly with its customers by introducing a complete Arm chip design. According to testimony and documented evidence presented during a trial, Haas went as far as to suggest that other chip companies, such as Qualcomm, would be at a disadvantage if Arm entered the chip market. “The rest are hosed,” Haas remarked in a Teams message dated December 2021, underscoring the potential challenges competitors might face.
During the trial proceedings, Haas sought to downplay his previous statements, characterizing them as part of strategic brainstorming sessions common among executives when discussing potential business ventures with colleagues and board members. While Arm ultimately did not venture into chip design, Haas emphasized that he is continuously evaluating various strategic options, stating, “That’s all I think about, is the future,” to the jury.
Further insights emerged during the trial, shedding light on Arm’s efforts to forge closer partnerships with device manufacturers. A pivotal meeting between Arm executives, including Haas, and Samsung representatives in October 2022 unveiled discussions surrounding Qualcomm’s licensing agreement with Arm, set to expire in 2025. Qualcomm’s CEO Cristiano Amon testified that following these discussions, Samsung expressed apprehension regarding Qualcomm’s ability to fulfill chip supply commitments. Amon reassured Samsung that Qualcomm’s Arm license extends until 2033. Despite this assurance, Samsung subsequently revised a three-year chip supply pact with Qualcomm, reducing it to a two-year term due to uncertainties stemming from the discussions.
Arm has raised objections to certain aspects of Amon’s testimony, underscoring the intricate dynamics at play within the semiconductor industry. The evolving landscape of chip design and manufacturing, coupled with strategic partnerships and licensing agreements, underscores the complexities and competitive pressures facing industry players like Arm, Qualcomm, and Samsung.
The developments highlighted in the trial underscore the strategic considerations and competitive dynamics within the semiconductor industry, accentuating the importance of innovation, partnerships, and market positioning in a rapidly evolving technological landscape.
(Reporting by Stephen Nellis and Max A. Cherney in San Francisco and Tom Wils in Wilmington, Delaware; editing by Kenneth Li, Rod Nickel and Matthew Lewis)
