Six Questions for ARM President Tudor Brown
British chip technology designer ARM Holdings reported earnings today, and it’s probably no surprise that results were pretty good, given all the news around ARM-based chips announced at the recent Consumer Electronics Show, the most important of which was probably that Microsoft will support ARM chips in its next version of Windows.
Revenue at $179.6 million beat the average estimate of analysts by more than $18 million, and per-share earnings at 14 cents beat the analysts by four cents. Tiernan Ray at Tech Trader Daily has more on the results themselves.
ARM’s business is to license the technology around which numerous chips you probably use every day are built. If you have a wireless phone, chances are there are ARM-based chips in it from any one of a number of vendors: Texas Instruments, Broadcom and Samsung, to name a few, though ARM designs have been known to show up in devices as varied as toys, cars, alarm clocks and remote-control devices.
This morning I chatted with ARM
CEO President Tudor Brown about the overwhelming strength of ARM-based chips in the exploding world of mobile devices, and whether that serves as a strategic beachhead to attack the world of PCs and servers, where Intel and its smaller rival Advanced Micro Devices hold sway.
NewEnterprise: Is any one customer responsible for a larger percentage of revenue than another?
Tudor Brown: The nicest thing about ARM’s business model is that our technology is very widely licensed. We’ve got 750 licensees to 200 different companies, and 18 of the top 20 semiconductor companies in the world. Some of those companies you know and are doing well, some of which you don’t know and which aren’t doing well. Our job is not to back winners, but to let them succeed with our technology.
Cleary ARM-based chips dominate mobile, and numerous ones are trying to challenge Apple with their own answers to the the iPad. What are your customers saying about that space?
Computing is changing. We’ve all been used to the PC world for the last 20 to 30 years. But going forward it’s breaking down and fragmenting. The PC will certainly continue, but we think things like smartphones and tablets are a big growth market, and it’s really driven by the demand for more portability. And these represent much bigger markets than the traditional PC market. ARM is obviously well positioned there. Whether the market is going to be about iPhones and iPads or Android phones and Android tablets, in a sense we really don’t care, because almost all of them are running on ARM. There are 300,000 Android activations every day and nearly all of them are on ARM. And so it’s not for us to say whether Android should win over iPhone or anyone else. Our job is to make the technology available and for these product categories to succeed on their own.
ARM has usually been associated with consumer and mobile devices. What other market segments is it in?
ARM has been pushing the consumer market because the business model is well-tuned to high-volume products. Mobile application processors have obviously been very successful in all the smartphones and other mobile devices out there, but we’ve also been successful in the low end with microcontroller chips, and also in the middle with unsexy things like chips that control disk drives and car braking systems and things like that. These add up to a pretty big share of revenue. Mobile products add up to about 62 percent of shipments, but that’s been moving down slightly. Non-mobile products are the other 38 percent. Very gradually we’re seeing these other markets growing faster than the mobile market.
And now there’s been talk of ARM chips in personal computers–Microsoft will support ARM with future versions of Windows–and in even in servers and supercomputers. What’s going on with that?
As we’ve seen the rise in servers and cloud computing in general, its been fundamentally behind the rising popularity of mobile devices which drives an insatiable demand for servers. The problem with servers is the amount of power they’re using. They’re based on very high-powered Intel technology. And so we believe as servers become higher volume that there becomes a need to get the cost down, including the cost of electricity, over time. People are starting to notice that ARM computing performance is going up. We launched the Cortex A15, which is our highest-performing processor to date, and I think you’ll see that some of our partners will be putting it in experimental servers this year or early next year. This switch to servers is going to take a long time. We think over five years we’ll see significant growth in servers.
The conventional wisdom right now is that Intel’s longest-term strategic threat is ARM. Is that fair? Will ARM become the rival camp to Intel and x86?
The two markets have been very separate and so they’ve been coming together. Intel has acknowledged that computing has to go lower-power, and they’ve done some work with the Atom processor. They’re still a long way off in terms of power consumption from where we are today. They’ll get closer, and ARM will move higher up in terms of computing performance. Inevitably there’s going to be a clash. Some thought it would happen in the netbook space, but that fizzled out in my mind. What people wanted was a PC running Windows, not some flavor of Linux, so x86 won out in that space. Now Windows is supporting ARM, and that starts to make new options available in the mobile computing space.
There was a bizarre rumor last year that ARM was being targeted for acquisition by Apple. I didn’t believe it, and most people who understand your business didn’t. But your stock certainly moved on the rumor. What was that about?
At the end of the day, ARM is a public company. If someone wants to buy us, they can make a bid. But we don’t think it makes any sense. If you think about what ARM’s business model is, it’s about supplying everyone with base technology. The moment that is controlled by one company in the ecosystem, it blows away most of the benefits of what the ARM technology is all about. What makes ARM so powerful today is the ecosystem of third-party companies that have grown up around it. All of those companies need to support ARM for it to be successful. The moment you take that away, you destroy that community, so we don’t think it makes any sense at all for one company to take us over. But when a rumor gets out there, it’s hard to go out and say it’s all nonsense.
Update: I updated this post to correct Brown’s title. He is President of ARM, not CEO.