Snapshot

As the semiconductor industry marches towards more advanced and efficient computing, ARM is leading the charge with its innovative processor designs and technologies.

Specializing in developing computer processors and related technologies. Its core expertise lies in designing and licensing processor architectures to partners who manufacture and sell the chips. ARM’s designs are renowned for their energy efficiency, making them ideal for a wide range of applications, particularly in mobile computing devices.

The company’s clientele spans a diverse array of industries, underlining the versatile applications of its technology. Its processors are fundamental to consumer electronics, automotive, and telecommunications sectors. ARM’s chips are embedded in most smartphones and tablets and are increasingly essential in smart home devices, automotive systems, and industrial machinery. Since its inception, over 250 billion ARM-based chips have been shipped worldwide.

ARM’s ecosystem is bolstered by a thriving community of over 15 million software developers working on ARM platforms. This vast network of developers is not only a driver of innovation but also ensures that ARM’s technologies are continuously evolving and adapted to meet the changing demands of the technology landscape.

Recently going public, ARM continues to focus on expanding its market reach and innovating its product offerings. In addition to strengthening its core processor design business, the company is also exploring new opportunities in emerging technology sectors. It is strategically advancing into new technology areas like artificial intelligence and machine learning, exploiting the potential of these domains for future growth.

Background

ARM began in 1990 as a joint venture between Acorn Computers, Apple, and VLSI Technology. It was initially established to develop a new type of processor architecture, which led to the creation of the ARM (Acorn RISC Machine) processor. The ARM architecture, known for its reduced instruction set computing (RISC) design, quickly gained recognition for its energy efficiency and smaller size than traditional processors.

This was a game-changer in the early 90s when the demand for portable, low-power devices began to surge. ARM’s business model was also unique for its time. Instead of manufacturing chips, they licensed their designs to other companies, incorporating them into their products. This strategy allowed for rapid expansion and widespread adoption of ARM technology.

Throughout the 1990s and 2000s, the company’s technology became the preferred choice for mobile devices, thanks to its power efficiency and performance. The company’s growth was propelled by the increasing popularity of smartphones and tablets, most of which were powered by ARM processors. ARM secured a dominant position in the mobile computing market by licensing its designs to industry giants like Qualcomm, Samsung, and Apple.

ARM’s product range expanded beyond mobile devices into embedded systems, automotive electronics, and IoT devices. Its architectures were increasingly used in various applications, from smart home devices to industrial automation systems. This diversification was a crucial factor in the company’s sustained growth.

SoftBank Group acquired ARM in 2016, while in 2020, Nvidia attempted a subsequent acquisition, although it was eventually canceled two years later due to regulatory pressures regarding national security and competition concerns. ARM ultimately went public in September 2023 after raising close to $5 billion at a $54.5 billion valuation, with SoftBank continuing to own 90% of the company following the IPO.

Leadership

After nearly a decade with the company, Rene Haas was appointed ARM’s chief executive officer in 2022. Haas has served multiple executive roles throughout the company within product and commercial segments. He transformed ARM’s IP Product Groups to focus on key solutions for vertical markets with a more diversified product portfolio and increased investment in the ARM software ecosystem. Before joining the company, Rene held several applications, product, and engineering roles including seven years at NVIDIA as VP and general manager of its computing products business, along with other executive positions at Scintera Networks and Tensilica.

Joining Haas is executive VP and chief financial officer Jason Child, a 30-year veteran across all aspects of global finance and strategy. He most recently served as senior VP and CFO at Splunk after spending over a decade leading various global finance teams at Amazon.

Customer

ARM has established itself as a leader in the semiconductor industry, primarily known for its processor designs and architectures. Unlike traditional semiconductor companies, ARM does not manufacture chips. Instead, it licenses its intellectual property to a network of partners who then integrate these designs into their products. Licensing revenue comes from granting partners the right to use its IP, while its royalty revenue is generated from the sales of products that incorporate its licensed technologies. This unique business model has made ARM’s technology ubiquitous in various sectors.

Central to the company’s offerings is its range of highly energy-efficient processor designs used in numerous applications, from simple microcontrollers to complex multi-core processors for smartphones, tablets, and high-performance computing systems. ARM’s Mali graphics processors are also widely used in mobile devices, providing the computational power necessary for graphics rendering and digital signal processing.

Development tools and software facilitate the design and implementation of ARM-based products. These tools are essential for developers and manufacturers to optimize their products for ARM’s architectures, ensuring efficiency and performance.

ARM’s customer base is incredibly diverse, reflecting the versatility of its technology. Major smartphone and tablet manufacturers rely on ARM’s energy-efficient designs to power their devices in the consumer electronics sector. This includes companies like Apple, Samsung, and Huawei, which utilize ARM’s technology in various iterations of their flagship products.

In the automotive industry, ARM’s technology is used for in-vehicle infotainment systems, advanced driver-assistance systems, and the emerging field of autonomous vehicles. Car manufacturers and suppliers integrate ARM processors into their designs to handle complex tasks such as image processing, sensor fusion, and connectivity.

From smart home devices like thermostats and security cameras to industrial automation systems, ARM’s low-power processors are ideal for Internet of Things devices that require long battery life and connectivity. Companies in the healthcare and agriculture sectors employ ARM-based IoT devices for applications like patient monitoring, precision farming, and asset tracking.

ARM architectures are increasingly being adopted in the networking and servers segment due to their power efficiency and performance capabilities. Data centers and cloud service providers are integrating ARM-based servers to handle growing data workloads while minimizing power consumption.

Furthermore, ARM is also penetrating the emerging markets of artificial intelligence and machine learning. The company offers specialized processor designs optimized for AI and ML tasks, catering to a growing demand for intelligent computing solutions across various industries.

Thematic

At the core of ARM’s product development strategy is the commitment to AI acceleration by developing energy-efficient CPUs and GPUs alongside specialized products like its Ethos neural processing units. The company’s progress in AI and ML workloads is evident in its rapid adoption across various sectors.

ARM has demonstrated robust growth across multiple market segments, significantly increasing its market share in areas ranging from mobile applications to IoT and embedded systems. The company’s dominance in the mobile sector remains steadfast, while substantial gains are evident in consumer electronics, cloud computing, automotive, and networking equipment. This broad expansion has contributed to ARM’s overall market opportunity, showcasing the company’s strong and growing influence in the global semiconductor industry.

Recent collaborations and licensing agreements are further embedding the company’s technology among industry leaders. Most recently, its Grace CPU has been combined with Nvidia’s Hopper GPU to create the aptly named Grace Hopper Superchip, delivering an energy-efficient computer for AI training and inference. Similarly, partnerships with companies like Meta, Google, and Qualcomm in deploying AI models and technologies in various devices, from edge applications to flagship smartphones, highlight ARM’s pervasive influence in the tech ecosystem.

ARM is increasing its presence in the cloud computing market by licensing its Neoverse CPU and Compute Subsystem technologies. It is also investing in software and developer ecosystems to support ARM-based cloud infrastructure development for this growing sector. The introduction of Neoverse CSS and Total Design ecosystem, involving partnerships with industry leaders, is helping to bring custom silicon solutions to the market more rapidly.

In the automotive sector, the company is rapidly gaining market share. ARM’s strategy to have its Automotive Enhanced CPUs and GPUs adopted for software-defined vehicles, IVI systems, ADAS products, and ECUs is being proven by its increasing presence in major OEMs and suppliers. Licensing agreements with automotive technology developers and semiconductor customers entering the automotive ADAS chip market showcase ARM’s expanding influence in this sector.

ARM’s leadership in IoT devices and embedded computers is also strengthening. Its Total Access agreement with a major semiconductor company and its licensing for high-performance processors for satellite and ground unit communications underscore its dominance in these markets. The introduction of powerful microcontrollers is further cementing ARM’s stronghold in these areas. Meanwhile, introducing high-performance chips like the Dimensity 9300 is supporting the company’s continued dominance in the smartphone market.

Financials

The semiconductor industry, while experiencing a decline in recent quarters due to inventory corrections, in its first public quarter, ARM reported a solid 28% year-over-year increase in revenue, reaching $800 million for the first time. This growth is attributed to ARM’s diversified business strategy and the signing of multiple high-value, long-term license agreements with leading technology companies.

Additionally, the increasing need for AI investment across various end markets has propelled the company’s license revenue up by an impressive 106% compared to the previous year. ARM’s focus on power-efficient solutions in sectors such as infrastructure and automotive has contributed to consistent double-digit royalty growth in these markets.

While full-year revenue at $2.7 billion was essentially flat for FY23 and operating income at $712.5 million, just marginally higher than the prior year, gross profit margins remain over 96%.

ARM’s annualized contract value at the end of the second quarter was $1.11 million, showing a sequential growth of 6%, primarily driven by high-value license deals. Remaining performance obligations, which represent the total revenue that ARM is expected to recognize in the future from contracts that have been signed but not yet fulfilled, were $2.41 million, an increase of 38% year-over-year, due to significant license deals and the renewal of a long-term customer agreement.

Looking ahead, ARM expects its total revenue for FY24 to be between $2.96 billion and $3.08 billion, growing at about 13% compared to last year, in line with consensus estimates. The company also expects earnings per share to be between $1.00 and $1.10, which also aligns with consensus expectations at $1.05.

Risks/Competition

The market for semiconductor technologies, particularly in the area of processor design, is intensely competitive and continually evolving. ARM faces stiff competition from major players in the CPU market, including Intel and AMD, especially for desktop, laptop, and server processors. NVIDIA and Qualcomm are also significant competitors in GPUs and mobile processors. While Intel and AMD have traditionally dominated the PC and server processor market, ARM’s architecture is prevalent in the mobile and IoT sectors. NVIDIA, known for its graphics processing leadership, competes with ARM in the AI and deep learning segments.

However, ARM’s competitive advantages lie in its unique business model, energy-efficient architecture, and extensive ecosystem. ARM’s licensing of its IP to a wide array of partners has enabled it to achieve extensive market penetration across multiple sectors and become the most pervasive CPU architecture globally, especially in mobile devices and, increasingly, in IoT applications.

Conclusion

ARM maintains a leading edge in the semiconductor industry with its efficient processor designs and unique licensing model. The company’s emphasis on energy-efficient architectures, widespread adoption, and robust developer ecosystem positions it for ongoing success and growth in a competitive market.

Symbol Info

Weekly Chart

Fundamental Data