How Arm Aims To Squeeze Device Manufacturers For Cash Rather Than Pocket Money For Cores • The Register

analysis The rumors and whispers of Arm raising its prices significantly while an IPO is looming just won’t go away.

The Softbank-owned British processor designer has reportedly reached out to several of its biggest clients to increase fees on its designs and charge device makers directly, rather than license designs to chipmakers.

Citing several industry executives and former employees, the Financial Times reports that under Arm’s revised licensing model, the company would calculate the value of the end device — say, a smartphone or tablet — rather than the value of the chips based on its designs.

Roughly how that would work goes like this, we’re told: Arm would still license its processor designs to chipmakers, but under so-called development licenses, which require the chips to be used only by manufacturers who have device contracts with Arm. Those manufacturers later get the chips, put them in their notebooks and phones, and pay Arm a license fee based on the final price of that equipment.

That should make Arm a lot more money, since a cut in sales of complete expensive devices should account for a lot more than the lower royalties Arm gets per chip. Arm has already been under pressure from Softbank to generate more revenue, and with an IPO imminent, the Cortex CPU business appears to need to prove it has healthy sales.

Traditionally, Arm has licensed its architecture and core designs directly to chipmakers, who have then sold their processors and system-on-chips to device manufacturers to integrate into their products. Arm only collects a portion of silicon chip sales, not recent whole machines.

Pulled into my arms

If these rumors are true, the change would be consistent with a strategy Arm publicly laid out last year. Last July, the company announced that it plans to “increase per-chip licensing revenue by adding value where it can provide more technology.”

At the same time, according to The Register, the company said it will “introduce new business models to change the competitive landscape, such as by licensing its technology directly to OEMs and cloud service providers.”

That’s our emphasis there.

Also last year, Qualcomm — which is locked in a heated court battle with Arm over the rights to use Nuvia’s intellectual property — warned in a lawsuit that Arm had gone all in on its plan to collect royalties from device makers and backed out avert license designs to chipmakers together.

“Arm has explained to OEMs that a direct OEM license will be the only way for device manufacturers to gain access to Arm-compatible chips,” the filing reads.

At the time, Arms’ chief spokesman dismissed the claims, saying the Qualcomm filing was “riddled with inaccuracies.”

The Register reached out to Arm again about the alleged changes, and the outfit declined to comment, saying it was not commenting on rumors or speculation.

As you’d expect, blaming higher royalties on device makers hasn’t gone down well with all parties involved, with one Chinese smartphone maker grumbling that royalties would be many times higher than what Arm is getting now. We believe much of the momentum behind RISC-V comes from Arm licensees weighing whether it is more cost-effective to develop or source alternative RISC-V CPU cores than to play Arm’s new payments game, or at least to use the resulting architecture as a negotiating tool Tool against poor.

Imagination Technologies – which designs and licenses families of GPUs that compete with Arm’s graphics cores and has embraced RISC-V – is among those who have noticed turmoil in the semiconductor world over Arm’s whispered intentions.

Arm’s behavior is unsettling to their existing customer base as their customers complain to us about their aggressive pricing

“Arm’s behavior is unsettling to their existing customer base, as their customers complain to us about their aggressive pricing,” a spokesman for Imagination told us. “We have no plans to change our business model as it is important that chipmakers and device manufacturers continue to have the freedom to choose their IP provider as this is key to driving innovation and technological advancement.”

For now, changes to Arm’s licensing model seem to focus on using its core CPU designs, which include the popular Cortex line found in many smartphones. MediaTek, Unisoc and Qualcomm have reportedly been approached by Arm on the matter. Apple, which owns an architecture license and designs its own cores, is apparently not involved in the negotiations.

That’s not to say Arm won’t bring similar changes to architecture license holders. The rules governing these licenses, which are used to develop custom chips compatible with the Arm instruction set, are at the center of Qualcomm’s legal battle with Arm to acquire chip startup Nuvia in 2021. Qualcomm paid 1.4 billion dollars for this startup with a plan to evolve its core technology into high-end CPUs for data centers, phones and other applications.

However, Arm argued that the US chip titan violated the terms of its licenses from Arm and called for the destruction of Nuvia’s CPU designs.

The alleged changes to Arm’s licensing come as the company prepares for an IPO in New York. Many had hoped for a dual listing on the London Stock Exchange, but Arm-owner SoftBank eventually abandoned those plans, citing unfavorable financial rules and a lack of flexibility on the part of the UK’s Financial Conduct Authority. ®