Arm is hoping for a significant increase in sales by
Gadgets

Arm is hoping for a significant increase in sales by switching to a new license model

The British holding arm of the Japanese group SoftBank plans to go public later this year, which is why the plans of the parent company’s management to change the business model are aimed at making the arm’s assets more attractive to investors. The developer of processor architectures does not want to collect license fees from every chip sold by the customer, but calculates the payment as a fraction of the cost of the entire device.

    Image source: Arm

Image source: Arm

Those plans, which Arm is already trying to discuss with MediaTek, Unisoc, Qualcomm, Xiaomi and OPPO, came to light through the publication filing. financial times. Now Arm receives revenue from the sale of its developments through two main channels. Processor developers enter into license agreements with the holding company that provide for payments of one to two percent of the price of each processor sold. In addition, there is a flat fee for the right to use arm developments from processing suppliers, the amount of which does not depend on the number of products sold.

A new option for monetizing ARM developments is to give processor manufacturers free rights, but with a clear limit on the list of customers those processors will eventually receive. Once Arm’s expertise is incorporated into electronic devices, it serves as the basis for receiving royalties on each item sold, but at this stage the unit amount of payment is calculated as a percentage of the cost of the entire device. The average cost of a smartphone last year was $355, and market participants, having been informed about Arm’s plans, believe that the size of payments to the British holding will increase several times. One or two percent of each processor sold, ranging from $6 to $40, generated a much more modest cash flow.

Arm hopes to be able to switch to the new license terms from 2024, but for now it’s just “stabbing on the ground”. The interests of Apple, which is both a developer of processors and a supplier of smartphones and other devices, are not yet taken into account in the negotiations, although this case is clearly treated separately. Arm’s new business model may have been necessary in the face of falling profits, as profits have fallen in recent years despite rising revenue. Arm’s spending more than doubled between 2015 and 2019 to $1.6 billion. Revenue rose just 20% to $1.9 billion over the same period, but earnings fell 70% to $276 million.

The originator of the new initiative is SoftBank boss Masayoshi Son (Masayoshi Son), who, against the background of billions in revenue from NVIDIA, Broadcom and Qualcomm, shared his dissatisfaction with Arm’s current earnings in a close circle. Another thing is that even the existing licensing system left room for conflicts and litigation between arm and customers, and when it comes to much larger amounts, the disagreements can escalate.

About the author

Johnson Smith

Johnson Smith is interested in Home Theater & Audio, Smart Tech, Google News & Products, How To, Apple News & Products, Cell Phones, Automotive Technology.

Add Comment

Click here to post a comment