Opinion: ARM’s refocus is good; suits a sale
The decision to pass the IoT Services Group over to SoftBank (ARM to refocus on chip IP, let go IoT businesses) for an undisclosed amount of recompense – if any – may seem like an admission of failure for the strategy laid out by SoftBank CEO and chairman Masayoshi Son, back in 2016, when he swooped to acquire ARM in 2016.
Perhaps it is and perhaps it isn’t.
More importantly it may be that ARM is being put on a crash diet to make it more attractive for an IPO or a trade sale. And that would be an admission that whole ARM adventure with SoftBank has been if a not a failure, then a money-recycling irrelevance to the fundamental business of creating value and wealth through the application of technology.
First off it would seem to reverse the strategic direction that ARM has been travelling on for a decade or more; to keep one foot resting on strenght in semiconductor IP while swimming up the value chain towards operating systems, data and services.
So, if that direction was the right way to go throughout Simon Segar’s incumbency as CEO of ARM, why is now the right time to turn about and refocus on semiconductor IP? Well I’ve already hinted at one possible answer.
It is undoubtedly true that many companies, having achieved mastery or even dominance in one area of endeavour, immediately try and conquer an adjacent, or even different, domain and often fail. At the same time those companies can take their eye off the “home turf” which is always evolving and throwing up new competitors.
Next: Babies and bath water
Intel has repeatedly tried to get into such areas as foundry chip supply and failed and meanwhile the manufacturing leadership that gave it control of the PC industry and other sectors, has evaporated. Current chip-manufacturing golden child Taiwan Semiconductor Manufacturing Co. Ltd., has taken Intel’s crown as manufacturing leader but it too has made mistakes. TSMC’s six-year flirtation with solar and LED manufacturing as diversifying alternatives to IC foundry work came to an end in 2015.
ARM has never been one for the big merger or acquisition preferring to pick up small dynamic companies as “tuck-in” additions to its portfolio of IP.
ARM has achieved gradual and almost inexorable success. Its processor core design wins have spread from mobile phones, to embedded applications, to servers and most recently to laptop computers (see Apple confirms switch to ARM-based processors for Mac computers). At the same time it has also moved up to offer the mbed operating system and IoT and data services. The result is ARM has become a bit of sprawling behemoth.
It is notable that the CEO and CTO are now both based in Silicon Valley (see Dipesh Patel takes over as CTO of ARM). It is perhaps also notable that Patel is a former president of the IoT Services Group.
So perhaps a refocus is appropriate? Well yes and no. It is important that ARM does not throw the baby out with the bath water. Not least because it now has a strong competitor on its home turf in the form of the ecosystem developing around RISC-V (see SiFive creates global network of RISC-V startups). RISC-V is a more recently developed, modular RISC instruction set architecture for processors, that carries none of baggage of having to meet legacy requirements from another era of computing.
These are the same advantages that ARM originally had when it went in to battle against x86 and 68000 processors from Intel, Motorola and others in the 1990s. But now it is ARM carrying the baggage. The one advantage ARM does have over RISC-V is the breadth and strength of its ecosystem and the ability to put firmware and early layers of software next to its chips. So to focus too much on cores and ignore the importance of the platform sale would be a mistake. It would give RISC-V a chance to compete head-to-head. It is not a mistake a expect ARM to make.
ARM has the resources to do great things in the area of artificial intelligence and machine learning, which could at least hold RISC-V at bay. ARM will need focus to do that and most likely the competition will come from several of the tens of startups aiming for that opportunity. So ARM has its work cut out before it gets distracted by ride-sharing services and subscription models for data sharing.
The IoT Services Group, the part which ARM is passing along to SoftBank, was built up in part through acquisitions of IoT startups Treasure Data and Stream Technologies in 2018. The core offering is the company’s Pelion IoT Platform. That was after SoftBank’s acquisition of ARM for $32 billion in 2016, when SoftBank’s Son said the deal was done because of ARM’s foundational technology and its growth potential in IoT.
With this latest move coming after that announcement the conclusion must be that ARM no longer has growth potential in IoT services. Why would that be?
One possibility is that a potential buyer of ARM has gone through the company structure telling Segars and Son what is it prepared to buy and what it does not require. “Dump this, this and this and we will take what we really care about, the semiconductor IP generating capability.” That allows the acquirer to pay the minimum price and have a minimum of post-acquisition housekeeping to do.
Next: Apple as potential buyer
Some people have even suggested that SoftBank might be preparing to return ARM to one of its original parents, Apple. Those with long memories may remember that ARM was founded as Advanced RISC Machines Ltd. by Apple Computer, Acorn Computers, VLSI Technology Inc. and, as I remember, a Japanese investment house.
However, Apple buying ARM would seem like a potential destroyer of value rather than an enhancer.
Some thought that Apple might bail out its supplier of graphics technology Imagination Technologies Group plc but instead it offered employment contracts to some of Imagination’s brightest and best (see Apple hires group of UK GPU engineers) which precipitated the eventual sale of Imagination to private equity (see Opinion: China has had its way with Imagination).
The same logic indicates Apple won’t be buying ARM. ARM is worth more doing what it has always done, designing semiconductor IP for the many with customization and additional support for the few. Even though Apple is one of the few institutions that could afford a several-billion-dollar price tag I don’t think Apple wants to get in to the semiconductor IP business.
But maybe an IPO with Apple as an anchor investor seeking to look after its architectural interests could make sense. But an IPO is a remarkably open and flexible route to go down during these times of US-China trade tension verging into a cold war.
It has to be remembered that China already has its teeth into ARM (see Opinion: ARM’s trouble in China was waiting to happen). Yes, the possibility of the sale of ARM begs the biggest question of all. Are Apple and the US and UK governments concerned if Chinese investment takes control of ARM and do Segars and Son care?
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