Cambridge-based ARM holdings is celebrating a fine start to 2011, with more money coming in from more markets as its chip designs continue to fill everything that is not a desktop computer. The first three months of 2011 saw revenue up by almost 30 per cent (to £116m) leading to an operating profit of more than £50m - a margin …
>ARM Licenses technology...
Doesn't that make them almost a patent troll according to the most rabid of the anti intellectual property people around here?
Not really, because
they are patenting processor architecture, rather than rounded corners or one-click buying.
The difference between ARM and a patent troll
The main difference between ARM and a patent troll is that ARM actually develops technology that has value to third parties. Patent trolling is parasitic - the patents do not necessarily have to cover technology that has saleable value or even incur significant R&D costs. They simply have to be granted with a definition sufficiently broad that they can be used to shake down third parties with a credible legal threat.
Some outfits do both. Intellectual Ventures comes to mind as a company that seems to divide opinion on this subject. On one hand they do actually fund R&D that appears to produce saleable I.P. On the other they have a rather shadowy patent hoarding operation using shell companies and creative accounting to keep the exact extent of the portfolio out of the public eye.
More likely copyrights
If they design the processors and other companies manufacture these, this is probably more similar to the business relationship between a publisher and printer.
Chances are they have some patents but much of the manufacturing and sales takes place where patents within other patent jurisdictions don't apply. Copyrights are another matter, because copyright infringing products are easier to police unless sold under the counter or through car boot sales. But we're talking consumer products here which are only economical if manufacturing runs are counted in the millions. I would imagine the trick is to prices licenses cheap enough so that manufacturers which buy these get access to larger markets worth more than the licensing cost. Also if they overprice the licenses, other design shops can start to get competitive.
Jingling with cash?
£50m - that's less than a banker's bonus..
Big pie, little slice
That's not much cash for so many CPUs. We often hear of technically strong companies being a commercial failure. Usually that's because they can't sell enough. But in this case I feel it's because they've not managed to negotiate a big enough slice of the pie for themselves.
... they aren't so greedy as to gouge the market for short term gains over long term stability.
They don't build the processors for them, they license their designs and tell companies how to make it themselves. If it was to expensive companies would simply go elsewhere.
That's a strength
ARM has two huge strengths over potential rivals such as Intel. One is low power consumption.
The other is precisely their limited niche. By taking a tiny part of a big pie, they put themselves at the heart of a huge and growing ecosystem, and make allies of everyone-but-Intel. If they get too greedy, all those allies will be looking for - and developing - alternatives.
Historical analogy: Microsoft in the 1980s, building a powerful alliance of all the clones industry: Compaq, Dell, and a host of others. They beat off all the technically-superior solutions from rivals like Apple, or ARM's progenitor Acorn, with exclusive business models.
Mine's a pint, to celebrate having bought the shares at under 90p.
A net profit of 40% of turnover isn't to be sneezed at.
ARM licences more chips every year than Intel has produced in its lifetime. That isn't really a niche market. If anything, Intel is the niche player.
jonathanb: yes, niche
Everyone has a niche. Producing processors is a niche in building our information infrastructure. Designing the core is a niche in that. By keeping to such a niche, ARM makes allies throughout the semiconductor industry. Allies for whom Intel is a direct competitor.
Intel, with its bigger niche, benefits from alliances *outside* the semiconductor industry: above all, Microsoft. After a generation, that alliance is losing exclusivity. Intel appears to be in a more difficult position: if Intel core designs compete with ARM for the affections of the semiconductor industry, they feed the deadly rivals to their production line, and important profit centre.
For about 3 billion processors per year ARM collects 0.1 billion GBP , that is 3 p each.
<<For about 3 billion processors per year ARM collects 0.1 billion GBP , that is 3 p each.>>
But some of the entire System on Chips are only $2 or less. Even the High end SoC is almost as much I/O as micro ITX, with the ARM just as one small section of chip. These can be only $10 to $20.
Don't compare with Overpriced Intel Desktop chips.
Jabber-slablets = smartphones ?
Is this a new entry in El Reg's jargon lexicon? Or did I miss something?
Re: did I miss something?
I think it's new. I also think that plain "jabber-slabs" rolls off the tongue more easily, but it's a fine coinage and more fun than "mobe", which always sounded slightly dirty.
>ARM Licenses technology...
I think you'll find that ARM develops and licenses fully realised technology solutions, not just patents.
These are Q1 figures alone, not a year-long results.
By licensing at relatively low royalty levels, manufacturers are happy to continue to license the technology and less likely to switch architectures.
As a result, as long as ARM based chips are being manufactured, ARM Holdings will continue to watch the royalties roll in.
£50m profit every quarter (assuming each quarter is the same) for the foreseeable future is very nice, thank you very much.
I sincerely hope you were being ironic.
"not much cash for so many CPUs"
Try thinking about it as profit per employee and you may be happier, perhaps?
"The Cambridge-based company added 193 new employees over the year to reach a total of 1,922 staff (meaning ARM earns £26,500 in profit for each employee). Nearly 100 of the new staff were added at its UK facilities."
Here's to a UK success, though I wish those people who frequently tout them as a UK success would also bear in mind that (as per above) they don't actually employ that many people (not directly, anyway).
..and another thing..
A company is valued more on its revenue than on its profit. ARM might only make a couple of pence profit on each processor shipped, but in reality it must make more than that and pump it straight back into the company - as any sensible company should.
ARM's overheads have got to be a tiny fraction of those incurred by the likes of Intel or AMD, so they don't need to make that much money. A £50m quterly profit is pretty good going for a chip company that is not only fabless but also does not even have to commission production runs of its own designs - They don't even need to market their designs in the way their licencees do.
"smartphones (including the iPhone and Android handsets)"
Ah yes, just in case anyone had missed news about iPhones and Androids. It's rare to hear about them, what with all the constant coverage about Nokia (which is actually the company that ships most phones and smartphones with ARM processors in).
Much as I admire ARM (ever since I had an Acorn Archimedes), it has to be said that £50m operating profit on a £185m turnover doesn't make for an industrial giant. Unfortunately it's not the sort of scale of business that's going to pull the UK out of the economic doldrums. Well, unless we can come up with a few thousand more (Germany is very good at these sort of specialist medium/large companies that have a product lead in their sector).
However, for ARM itself, the prospects must look good. With such a low cost base, and the ability to charge such low royalties, they have a huge commercial advantage. The entire cost base of ARM will be a tiny fraction of what Intel would have to spend to develop this sort of market.
The market cap of ARM is only about 1.5% of that of Apple for instance, and a small fraction of the latter's cash pile.
Chances are that ARM will be earning those pennies on those designs for a very long time indeed. Intel won't be earning much on 4 year old chips... ARM are clearly in it for a long time to come, and those pennies will keep adding up.
not much cash for so many CPUs
That's their advantage - why would Samsung bother to develop their own 32bit CPU when they can buy an Arm licence for a few cents?
ARM have the advantage that selling an extra CPU costs them precisely nothing - if you want to buy a billion licenses they can offer you a very good rate!
Note this is £50m on 3 *months* business
That's better than 43% profit margin.
The book "Fabless semiconductor implementation" by Kumar indicates that a profit margin of 30-50% is usual in this industry. So a bit above the industry mean.
Tesco do about 6% while there competitors in the rest of Europe do about 5% for comparison.
I *like* ARM.
But I just wish there were more companies *like* it rather that it seeming to be the *sole* successful example of a *lasting* and growing UK wafererless fab. Zetex got bought by Diodes In of Texas some time back so I don't think there are *any* UK owned wafer fab operations *left* in the UK.*
*But I'd happily be proven wrong.
Re: Note this is £50m on 3 *months* business
"I *like* ARM."
So do I, and found myself leching an Acorn/Archimedes about 19 years ago, as its owner told me why the screen did not go through the then wavy PC refresh/redraws that had become very boring to me.
UK computing has been too quiet for too long, and I would dearly like to see these people make and sell something equally niche, clever and lasting. These people deserve to succeed. It's another one of those things whose international success I quietly hope for, having hoped and then wept at the loss of Norton - due, IMNSVHO I should add, to bad business practise - though Triumph is, well, a triumph, in spite of the total destruction of their factory a few years back.
So yes, good on them.
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