What is Arm Holdings?
Arm Holdings, the influential British microprocessor design firm, "got its start in 1996 as 'in-car' electronics grew unwieldy. Car manufacturers started asking for multiple control circuits to be bundled into one chip, in order to save space and eliminate weight and complexity. Arm designed a processor which did just that. As a result, the vast majority of cars sold globally already have at least some Arm IP in them, managing things like electric windows or dashboard displays."
"Arm’s recipes for computer chips—it designs them but does not make any itself—are the most popular on the planet. Since it was founded in 1990, its corporate customers have sold a whopping 130bn chips based on its designs."
Arm's "clients—consumer-hardware giants such as Apple and Huawei; chip companies such as Broadcom and Qualcomm—pay Arm one-off licence fees to access the design code, add to it what they will, then pay royalties on every product they ship containing it. Apple’s popular A-series mobile processors, for example, are built in this way."
Japanese multinational holding company SoftBank Group, headed by visionary investor Masayoshi Son, took Arm Holdings private in 2016 for £24.3bn ($32bn). "The deal was the largest acquisition that Mr. Son has made, and also one of his priciest (at a 43% premium to Arm’s [then] market value)." "Since that time, Mr. Son has instructed the company to lower its profits to around zero and instead reinvest in order to expand into other technology markets." (More below)
"Money ploughed back into the firm has mainly gone into hiring staff. Arm has brought in 1,800 people in the two years since the acquisition, increasing its headcount by half; when your products are intangible, brainpower is the primary ingredient required to make more. Arm estimates that designing an advanced central processing unit from scratch takes it 300 man-years."
How can Arm expand so as to provide SoftBank a worthwhile return on its acquisition...?
Son's Vision: Expand into chip design for all manner of smart devices
"Mr Son has boasted that Arm could become more valuable than Google, by selling intellectual property (IP) into a world in which there could be as many as 1,000 internet-connected devices—from smart traffic sensors to utility meters to personal health trackers and so on—for every person on Earth."
"When autonomous cars do arrive in the mass market, Arm anticipates a payday. It estimates that they will require ten times more computational power than an advanced smartphone does, meaning the market could give Arm the possibility of collecting ten times the royalties for each autonomous car that is built using its IP."
B. Networking Equipment
"Another promising area is network equipment, the connective tissue of the internet. As the cost of storing and processing data has plummeted over the past two decades, the cost of managing all the resulting traffic has rocketed. Arm is betting that the world will need more machines that are designed to shuttle data around efficiently, and to keep networks secure as they do so. "
C. Energy management
"Eric Hennenhoefer, who runs Arm’s research division in Cambridge, says that the firm is working on designs for chips which can harvest the energy they need to run from the environment around them, instead of requiring some built-in power source. Why? When his team looked into the subject, they worked out that there is not enough lithium on the planet to build batteries for the trillions of computers with which Mr Son expects to paint the world in the coming decades."
"So if his vision is to come to pass, many processors would have to get by without batteries. This might be done by harvesting energy from motion or from low-level background radiation, concepts that for now exist only in academic circles." Arm is planning to design just such chip logic.