Tuesday, July 19, 2016 10:40:07 AM
SoftBank could spend heavily to make ARM's processor designs more competitive with Intel's. And it might also start to charge more for them.
https://www.thestreet.com/story/13643111/1/softbank-rsquo-s-surprise-purchase-of-arm-could-have-major-ripple-effects.html?puc=yahoo&cm_ven=YAHOO
It involves a Japanese conglomerate whose most valuable assets are investments and controlling stakes in telecom carriers and Internet services firms acquiring the world's dominant provider of CPU core designs. Don't try to decipher what major synergies exist between ARM and SoftBank properties such as Sprint (S) , Japanese mobile carrier SoftBank Corp. and gaming company GungHo Online -- they don't exist.
The purchase isn't about synergies, but is rather a large one-off bet -- made easier because of the pound's post-Brexit decline -- by mercurial SoftBank chief Masayoshi Son. Son's wager is that owning a company that has a near-monopoly position on the licensing of microprocessor core designs to chipmakers, and also supplies GPU core designs and other complementary intellectual property, will pay dividends as the number of devices and subsystems featuring embedded processors -- including those falling under the Internet of Things (IoT) label -- keeps growing, and the computing needs of existing intelligent devices keep rising.
The deal is also one that's unlikely to yield a rival bid from a chip developer, due both to the price tag and because ARM's business model has required it to be the industry's Switzerland.
If Intel (INTC) , for example, tried to acquire ARM, not only would regulators probably object, but many of the ARM licensees who happen to be Intel rivals -- the list includes
Qualcomm (QCOM) ,
Broadcom (AVGO) ,
Marvell (MRVL) and many others -- would start weighing alternatives.
Likewise, if Apple, whose A-series processors feature custom ARM cores, tried to buy ARM, Samsung (SSNLF) ,
Huawei and just about every other Android OEM would get nervous, given that their phones and tablets are powered by chips containing ARM cores.
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Judging by initial remarks from SoftBank and ARM,
as well as SoftBank's history, the deal could be a negative for Intel, as it may result in ARM significantly boosting its R&D spending,
and thus helping licensees squaring off against Intel in markets such as server CPUs, network processors and IoT chipsets field more competitive solutions.
It could also be a negative for U.K.-based
Imagination Technologies (IGNMF) ,
which competes against ARM in the GPU core market.
Perhaps with an eye towards pleasing British politicians and regulators, SoftBank says it plans to "at least double" ARM's U.K. headcount over the next five years, while also increasing ARM's non-U.K. headcount.
Moreover, after closing past acquisitions such as
Sprint and Vodafone K.K. (now SoftBank Corp.),
SoftBank has spent heavily to improve the competitiveness of the acquired companies. Chances are it'll look to do the same with ARM.
But the deal might not entirely be good news for ARM licensees, if SoftBank tries to justify the steep price it's paying for ARM by boosting the licensing fees and royalty rates ARM charges for use of
its IP. The royalty rates are especially worth watching, given that ARM,
in spite of its near-monopoly position, has typically received just pennies for each chip using its cores.
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In the first quarter, the company recorded processor royalty revenue of $191.9 million from the shipment of 4.1 billion ARM-powered chips in the fourth quarter. That spells an average royalty of just 4.7 cents per chip, even though many of those chips featured multiple ARM cores.
If SoftBank tries to up that figure to, say, 7 or 8 cents per chip, that could ding the margins of ARM licensees a bit.
But given the ubiquity of ARM's CPU architecture and the massive ecosystem that has formed around it, chances are that licensees will grin and bear it.
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