ARM ramps up diversification effort with flexible access scheme

Processor IP licensing firm ARM managed to boost its fiscal first quarter revenues by almost 10% year-on-year despite a slowdown in its core market, smartphone chip designers.

The Softbank-owned company reported revenue up 9.7% to $418m for the quarter ended June 30, despite its royalty revenues falling by 8% because of the stagnant smartphone sector. Its growth showed the success of its efforts, in recent years, to anticipate the end of the smartphone boom by diversifying its target markets and its business model. And now it is introducing a new way to access its technology with a novel flexible licensing scheme

While royalties for use of its IP remain its biggest source of revenue – $240m out of a total of $418m in the quarter – they are under pressure. By contrast, new licences generated revenue growth of 47% year-on-year, to contribute $125m. The firm sold 28 licences in the quarter, including two for new technologies which have not been publicly announced yet. Of the 28, 19 were for the Cortex-M microcontroller family of designs, which target low power and IoT products (ARM’s other main portfolios are Cortex-A, for higher end microprocessors, mainly for smartphones; and Cortex-R, for real time processors).

It is worth noting that the licensing growth figure was inflated by the establishment of ARM China, which delayed licensing activity in the previous fiscal year and so made this year’s percentage growth higher than it would have been in normal circumstances.

ARM is also seeing high growth in its software and services business, which it has been building up to broaden the revenues it can generate from users of its IP and to ease adoption of its platforms. This unit remains the smallest, with Q1 revenues of $53m, but has the highest growth, at 51.4% year-on-year.

On the royalties front, ARM reports fees paid for chips that shipped in the prior quarter to that of the fiscal report. So, in the period ended March 31, it said 4.8bn ARM-based chips shipped, but that was down 12.7% year-on-year, because of slowing smartphone sales growth combined with overall weakness in the semiconductor industry.

This will make it important to continue to build momentum behind pushing ARM designs into non-smartphone markets. The rising number of licensing deals for Cortex-M is one reason to be optimistic, since commercial chips, and resulting royalties, should follow from most of these deals over the next year or two. Other markets for potential growth are servers and cloud infrastructure, with Cavium a flagship partner; automotive; networking processors; next generation PCs and graphics-heavy devices; and the broad IoT space from microprocessors to microcontrollers to real time chips.

Diversification will be even more urgent given the risks associated with the current trade climate in the hi-tech world. ARM may be protected to some extent by the deep pockets, and long term vision of its Japanese owner, but Softbank, in reporting the results, still emphasized the risks from trade disputes and sanctions. These, it warned, could impact licensing and software/services revenues if chipmakers decided to delay new processors; as well as royalties if there were unexpectedly intense pressure on chip sales and prices.

This period of change and uncertainty is not one to cling to traditional processes and ARM is seeking to diversify its model as well as its markets. It recently introduced its new flexible licensing model, which reduces the cost of licensing its IP and so opens its technology to a wider range of customers. This is made doubly important because of the rise of open source processor designs, notably RISC-V, which could help chip companies design new products while bypassing ARM fees and control. This would apply in particular to start-up pursuing sub-sectors of the mobile and IoT markets, which may initially seem speculative or niche.

Under the new scheme, customers pay only a “modest” upfront fee (from $75,000 a year) and then negotiate licensing deals when they are close to the production phase of a new chip. This means they do not take the risk of paying for ARM technology in the early stages of the design, which they may end up not using in production. But they will be able to engage with ARM and its IP pre-commercially, and then pay just for what they end up using for full products. This should reduce the allure of open source or low cost alternatives, argues ARM, while maintaining the value of the IP once it has been adopted.

“By converging unlimited design access with no upfront licensing commitment, we are empowering existing partners and new market players to address new growth opportunities in IoT, machine learning, self-driving cars and 5G,” said Rene Haas, president of the intellectual property group at ARM.

The Flexible Access portfolio will include all the essential IP and tools needed for a system-on-chip (SoC) design, said ARM, and many prototypes can be made and tested before any significant financial commitment. It will come with an annual access fee of $75,000 for entry level (one SoC tape-out per year) and $200,000 for standard level (unlimited tape-outs), and carries the same support and maintenance services as full customers receive.

Most processor cores within the Cortex-A, -R and -M families are included in the scheme, along with TrustZone and CryptoCell security IP, selected Mali graphics processors, and system IP.

This mechanism joins the standard licensing – which is likely still to be advantageous for large customers or those which are fully committed to the ARM architecture, since they will have less need to evaluate Cortex, and will be in a position to negotiate better deals over time. These customers will also have earlier access to the most advanced new ARM designs, and some licensees also have architectural partnerships, which enable them to customize the ARM cores to differentiate their designs further.

ARM also offers DesignStart, an even lower cost way to experiment with its architecture, though it comes with community support only. This is free for the Cortex-M0, M1 and M3 microcontroller cores and costs $75,000 for the Cortex-A5 processor core.

The company hopes that opening up its licensing approaches will boost innovation and bring it some of the benefits of an open source community, and so help it with its diversification mission, and its bid to establish the pre-eminence it enjoys in smartphone SoC products, in growth sectors like artificiation intelligence and edge computing.

ARM’s SVP and general manager for automotive and IoT, Dipti Vachani, said: “Our experience has shown us that long-time and new customers can reap great rewards equally from being able to experiment more easily before committing to a particular technology path, and Arm Flexible Access enables that.”