CSS will drive Arm’s move into a nuanced sales zone
The provision of a customizable hardware-software compute subsystem (CSS) is set to boost Arm’s revenue in 2025 and will take the company to the boundary between licensing and product supply.
There has been much talk about whether processor IP licensor Arm Holdings plc is going to start making processor chips and compete with its fabless chip customers.
In court cases between Arm and established licensee Qualcomm it is alleged that Arm CEO Rene Haas had written a strategy paper indicating ARM could start designing its own chips. Haas responded that as CEO it was his job to consider multiple possible courses of action and that this one has not been implemented.
It has also been reported by the Financial Times that Arm is designing a CPU for use in datacenter servers as a “chip platform” that will be customizable for multiple customers with Meta – owner of Facebook – as the first. That chip could appear as soon as the summer of 2025 (see ARM signs Meta as first chip product customer, says report).
Grey zone
However, the situation is likely to be more nuanced than the headlines suggest. And this is because the boundary between IP licensing, design services and product can become fuzzy. Particularly when you throw in IP licensing plus configuration or configurable IP supplied on silicon as chiplets for inclusion in a multi-die component.
And CSS is set to be the key to multiple forms of engagement for Arm.
CSS is a pre-validated, production-ready set of integrated hardware and software components designed to accelerate the development of scalable computing solutions. These subsystems are built around Arm’s Armv9 architecture CPUs and its latest GPU architectures and optimized for various markets, including cloud, AI, edge, and client devices such as PCs, laptops, and smartphones.
CSS was one of the boosters to Arm’s most recent set of financial results.
At the same time Arm is swimming up the value chain and pitching its multi-cored processor designs to OEMs, thereby bypassing chip companies who might otherwise have seen those OEMs as their market opportunity. So, Arm doesn’t have to make its own chip products to compete with its customers. Just start licensing its IP to its customers’ customers.
The hyperscaler environment provides the example. One of Arm’s most successful IP licensing engagements has been with Nvidia in the Grace CPU which sits alongside the Hopper and Blackwell GPUs in datacenters. The Hopper, Blackwell and Grace chips, and modules based on them, have commanded phenomenal prices and made Nvidia the world’s largest chip company.
But at the same time Arm has been selected as the CPU architecture by hyperscalers who wanted to avoid paying Nvidia’s high prices and develop their own expertise; Amazon Web Services (Graviton), Microsoft (Cobalt 100) and Google (Axion).
The introduction of CSS is now set to accelerate this engagement trend for Arm across the client, infrastructure and automotive domains.
Nvidia, unlike Qualcomm, does not appear too concerned because it too is swimming up the value chain towards software and AI as a service, and the intersection of AI and pharmaceuticals, robotics and autonomous cars.
Devil is in the detail
However, what constitutes a product can become a grey area. Is Microsoft’s Outlook a product or a service?
If Arm contributes IP blocks, processing arrays, plus design at the level of interconnect fabric and even holds the hand of an OEM getting silicon manufactured and yielding at a selected foundry, then who’s chip is it? How can that chip design be re-used by the OEM and by Arm? In other words, when is a product a product?
Using the customizable platform approach mentioned above, Arm could do a complete design for Meta before using the same platform to do another complete design for an enterprise AI or sovereign AI client. Is Arm providing design services or a product?
It all depends on fine detail of the contract. But AI is changing the technical and commercial landscape quickly and therefore also the framework within which Arm operates. Haas is probably thinking Arm’s biggest opportunity lies in broadening its forms of engagement.
Will Arm will go all the way and take responsibility for silicon production, packaging, test and delivery and put its brand on the chip?
The advantage is that at that point ARM can set the component pricing and retain all of the chip value rather than just taking a royalty share set at a few, or several, percent of the price. The temptation is that Arm could conceivably command similar margins to those Nvidia has done. The disadvantage is that this could accelerate the exodus of fabless chip companies from Arm architecture towards RISC-V.
However, the persistence of the royalty streams from fabless chip companies that have been hooked on Arm makes that a five-year or decade-long concern, rather than an immediate issue.
The idea that Arm could act as a processor vendor in some markets while retaining the IP licensing business model in others, was first raised by Jensen Huang, CEO of Nvidia, when he pitched to buy Arm from owner SoftBank Group for US$40 billion in September 2020. It was an unpopular idea then and may have contributed to the regulatory challenges that came from several jurisdictions and the bid being terminated February 2022.
But maybe the idea never really went away.
That means that ARM could provide all sorts and styles of engagement under CSS that fall just short of being a product. And then there may be customer who for the sake of expediency says to Arm, “Just ship us the chip product. We’re adding value elsewhere.”
But in 2025 it may also be worth Arm considering that services, such as IP licensing, supplied into the US are not, at present, liable to tariffs.
Related links and articles:
News articles:
ARM signs Meta as first chip product customer, says report
ARM loses out in Qualcomm court case, wants a re-trial
Nvidia, CSS, Malaysia drive Arm’s billion-dollar quarter
ARM sale to Nvidia agreed at $40 billion
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