Analysis: ARM reshuffle preps for IPO

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By Nick Flaherty

The management reshuffle at ARM could look like rearranging the deckchairs on the Titanic of a struggling chip designer.

The restructuring follows a court case against its largest customer of cores for consumer devices, Qualcomm, and moving the general manager of that consumer Client business could be seen as an opportunity to reset the relationship.

That case is about Qualcomm’s acquisition of Nuvia and the architectural licenses. Nuvia developed data centres chips under a startup license. Qualcomm now wants to use this technology for smartphones and laptops under its own architectural licenses.

ARM’s decision to sue its largest Qualcomm would have been taken at the highest level and is a collective choice.

However the management changes are more about preparing for the second IPO of the business.

The first IPO was all about mobile. Back in 1998, eight years after its spinout from Acorn Computer with the backing of Apple and VLSI Technology,

The disastrous deal to sell to Nvidia took the emphasis off the mobile business. Nvidia had tried that a decade ago, buying Icera Semiconductor in 2011 to provide a 5G modem for mobile chips. That business was wound down in 2016 as ARM was bought by Softbank.

The breakdown of ARM’s mobile business from Strategy Analytics

That deal made sense when combined with its cellular portfolio. There is a strong argument that the nature of mobile communications is changing, with shipments of mobile phones flattening out and increasingly commoditised. European companies are preparing for a fundamental change in the nature of mobile communication to more wearable devices and higher performance.

Analysts such as Stacy Rasgon at Bernstein Research point out that the company needs a growth story to attract investors. Asking for more than just a smartphone story shows the need for changes that the management reshuffle addressed.

Future unit growth is about the IoT. A record 29.2bn chips shipped in FY21, including nearly 8bn in Q4, but ARM needs to show continued growth in units and ways to increase the value of the royalties it brings in.

There may by additional help from the increase in price of 32bit microcontrollers, although that was driven by the chip shortages from the pandemic shutdown and the capacity crunch for older process technologies. This will settle down as devices to move to newer process nodes with more availability – the shortages at Raspberry Pi highlighted this.  

Williamson is now tasked with growing that IoT business into one that rivals the mobile business. The M85 microcontroller core is bumping up against the low end of the A-class application processor range, and the safety critical R-class devices are moving from automotive to industrial control.

While performance is key for the infrastructure business, which is shifting from networking to high performance data centre chips. This means that software compatibility now dominates, hence the appointment of Mohammed Awad who previously ran the IoT business. He is unapologetic about the importance of software.

Bergey has successfully pushed forward the infrastructure business into the data centre and is no stranger to rejuvenating product lines in the largest segment in the company.

Other processor developers are pointing to a gap between the A55 and A78 cores for mobile application processors, and the high end X1 and X2 cores which are a key part of Meditek’s growth in high end 5G smartphones.

2021 royalty revenues were up 20% to a record $1.54bn, helped by continuing strong growth of 5G smartphones, more assisted driving and infotainment chips going into cars, and price increases in 32bit microcontrollers.

“Our record results demonstrate that the demand for Arm technology and the strength of the Arm ecosystem has never been greater – our compute platform will power the next set of technology revolutions across cloud computing, automotive and autonomous systems, the IoT, the Metaverse and beyond,” said Rene Haas, CEO of ARM.

Under Softbank, the breakdown of the different business lines of ARM are not available. The IPO will give more visibility of the size of these business lines and the challenges ahead of the management team.

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