ARM: licensing fees will increase several times

ARM: licensing fees will increase several times.

ARM informs customers to adjust its business model next year: chip design licensing fees will increase several times

According to reports on March 23, ARM, a chip design company under Softbank Group, plans to adjust its business model to increase the price of its chip design, hoping to increase the company’s operating income before this year’s IPO (initial public offering).

ARM: licensing fees will increase several times

Currently, ARM’s chip designs are used in more than 95% of the world’s smartphones.

ARM recently notified some of its largest customers of a fundamental shift in its business model, according to several industry executives and former employees.

Instead of charging chipmakers a royalty based on the value of the chip, ARM plans to charge device makers a royalty based on the value of the device, these people said.

That means that for every chip design it sells, ARM will make several times more money than it did before, because the average smartphone is much more expensive than a chip.

ARM currently licenses its chip designs to more than 500 companies that use its designs to make their own semiconductors.

Apparently, the change would be one of the biggest tweaks ARM has made to its business strategy in decades.

The move comes as SoftBank CEO Masayoshi Son seeks to boost ARM’s profits in order to attract more investors in the upcoming IPO.

A former senior employee who left ARM last year said: “ARM is telling customers, ‘We want to get more money for roughly the same thing’. SoftBank’s move is also a test of the market value of ARM’s monopoly position.”

SoftBank plans to start pushing ARM’s pricing reform as early as next year, people familiar with the matter said. But so far, customers have been reluctant to accept the new pricing arrangement, frustrating SoftBank.

MediaTek, UNISOC and Qualcomm, as well as several Chinese smartphone makers including Xiaomi and OPPO, have been notified of the planned pricing adjustments, the people said.

Under ARM’s adjustment plan, royalties will be based on the average selling price of mobile devices, not the average selling price of chips. The changes will primarily concern ARM’s best-known “Cortex-A” design, which is central to the development of smartphone processors.

Charging based on the price of the device is a common practice in the telecom equipment market, and patents from Qualcomm, Nokia and Ericsson all use similar models.

But the problem ARM faces is that the current charging model has been deeply rooted in the hearts of the people, but now it is trying to change this pricing strategy.

In terms of the average price of a smartphone computing chip, Qualcomm sells for about $40, MediaTek for about $17, and Tsinghua Unigroup for about $6.

According to Sravan Kodojjala, an analyst at research firm TechInsights, ARM charges a royalty of about 1% to 2% of the value of each chip based on its designs.

This compares to an average smartphone selling price of $335 in 2022. Although ARM is unlikely to seek licensing fees as high as 1% to 2% of the value of each device, people familiar with the matter expect that ARM’s new pricing strategy will greatly improve its overall revenue.

An executive of a Chinese smartphone manufacturer said: “Under the new pricing model, the licensing fee will be at least several times higher than the current one.” The executive also said: “We have been told that the new pricing model plans to Started.”

Some of ARM’s customers, including Apple, are both chipmakers and device makers, and these customers have special licensing and royalty agreements with ARM.

An industry executive said Apple was not involved in the discussion of ARM’s business model adjustment.

In this regard, ARM, Softbank, Qualcomm, MediaTek, Ziguang, Xiaomi and OPPO all declined to comment.

Why has ARM processor become more and more pupular?

There are several reasons why ARM processors have become increasingly popular in recent years:

Power Efficiency: ARM processors are known for their power efficiency, meaning they consume less power compared to other processors. This makes them an ideal choice for mobile devices like smartphones, tablets, and laptops that require long battery life.
Flexibility: ARM processors are designed to be flexible and can be customized to suit specific needs. This means they can be used in a wide range of devices, from IoT devices to high-performance servers.
Cost-Effective: ARM processors are cost-effective and can be produced in large quantities, making them an attractive choice for manufacturers who want to keep production costs low.
Performance: ARM processors are known for their performance, particularly in terms of processing speed and graphics capabilities. This makes them an ideal choice for high-performance computing and gaming applications.
Industry Support: ARM processors are backed by a large and active developer community, which provides support and resources for developers and manufacturers looking to use ARM processors in their products.

These factors have contributed to the increasing popularity of ARM processors, particularly in the mobile and embedded device markets.

Is there other option other than x86 and ARM processors?

There are other processor architectures available besides x86 and ARM.

Here are a few examples:

MIPS: MIPS is a RISC-based processor architecture that is commonly used in embedded systems and networking devices.

Power Architecture:

The Power Architecture is a RISC-based processor architecture that is used in a variety of applications, including servers, gaming consoles, and automotive systems.

SPARC:

SPARC is a RISC-based processor architecture that was developed by Sun Microsystems and is commonly used in high-performance computing and server applications.

RISC-V:

RISC-V is an open-source, RISC-based processor architecture that is gaining popularity in the embedded systems and IoT markets due to its flexibility and low power consumption.

Intel Itanium:

Intel Itanium is a processor architecture that was designed for high-performance computing applications, but has since been largely superseded by x86.

These are just a few examples of processor architectures that are available in the market today.

The choice of architecture will depend on the specific requirements of the application, such as performance, power consumption, and cost.

Is there licensing fee for above architecture processors?

The licensing fees for the various processor architectures can vary depending on the specific architecture and the intended use of the processor.

For example, ARM offers a range of licensing options for its processor architecture, including a royalty-based model where licensees pay a fee based on the volume of chips produced.

The exact fees can vary depending on the specific ARM IP used and the volume of production.

Similarly, companies that use MIPS, Power Architecture, SPARC, or other processor architectures may be required to pay licensing fees to the owners of the intellectual property.

In the case of open-source processor architectures like RISC-V, there are typically no licensing fees associated with the use of the architecture, although companies may need to pay for support services or consulting fees to customize and integrate the architecture into their products.

It is important to note that licensing fees are just one aspect of the overall cost of using a particular processor architecture.

Other factors such as development costs, tooling costs, and manufacturing costs also need to be taken into consideration when selecting a processor architecture for a particular application.

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