Every iPhone runs on an ARM-designed chip. In fact 95% of all smartphones, most tablet PCs, including the iPad, Samsung’s Galaxy and Motorola’s Xoom, and over 10% of laptops globally use ARM chips because they are faster and use less energy than many of the competing designs from the likes of Intel and AMD.
Tracing its history back to the 1980s, the seed that became ARM was the first ARM (Acorn RISC Machine) chip developed by the R&D team at Acorn Computers, previously famous for creating the BBC Microcomputer. In 1990 ARM Ltd. was spun out of Acorn and, with backing from Apple and VLSI technology, created as an intellectual property licensing company. Twenty years later with revenues of more than £400 million, over 740 licenses for ARM design chips had been granted to a host of major manufacturers. The company is now the world’s leading semiconductor intellectual property supplier with its products at the heart of an increasing array of digital products from phone and laptops to cameras, digital TVs and even washing machines.
What is particularly interesting about ARM, and of great concern for its competitors, is that the company doesn’t actually manufacture anything. It has no factories, relatively few employees, and yet it leads the semiconductor world in developing the latest technology platforms for a growing majority of consumer electronics products. ARM makes its money by conducting leading-edge R&D from its HQ in Cambridge and then licenses the designs that emanate from this to as many companies as possible around the world. Instead of ARM bearing the cost of manufacturing, a network of partners of the world’s leading semiconductor manufacturers does that. In an industry where technology licensing has been an interesting revenue contributor for several companies for a number of years, ARM has made it the business model. With a pipeline of innovative new products coming to market, 2010 revenue growth was over 30%, profits more than doubled and revenue per employee was over £215,000.
As ARM’s partners are the world’s largest semiconductor manufacturers, their regular royalty payments have become a highly reliable cash flow and, given the broad base of partners and end markets, ARM has diluted dependency, and is not overly reliant on, any one company or consumer product for future profits and cash. Of particular note is the shareholder value created through this model: Since 2004, ARM has returned over £400 million of cash to shareholders through a mixture of share buybacks and dividends.
The successful growth of ARM is built upon its ability to choreograph its technology sharing communities and partnerships supported by its focus on design rather than production. And this success has established ARM as an important partner for many of the big players in the consumer products space and given it the base to continue to develop technology solutions and deliver further growth.