Arm plans major overhaul of its licensing business to increase profits

The IT&C industry was relieved to see the Nvidia - Arm merger stopped in its tracks in early 2022. In the meantime, various companies tried to form consortiums to gain strategic control of Arm, but SoftBank, the company that currently owns Arm, decided to ignore all those ambitious plans and instead focus on an old fashioned initial public offering scheduled to occur later this year. The problem with Arm, at least up to the Nvidia takeover attempt, was that it somehow was recording stagnating revenues and falling profits, despite massive chip design demands from the smartphone sector. Now, in an effort to increase the company valuation in light of the IPO, Arm is looking to raise chip design prices with a complete overhaul of its licensing business.

Several industry executives and former employees quoted by the Financial Times report that Arm intends to stop charging design royalties for each SoC sold by chipmakers like Qualcomm or MediaTek and instead charge the smartphone makers based on the value of each device. This should bring increased profits since one smartphone is obviously more expensive than the SoC it is powered by. As one former Arm employee puts it, “SoftBank[...] is testing the market value of the monopoly that Arm has.” This change would be implemented in early 2024, but Chinese smartphone makers like Xiaomi and Oppo have not yet accepted these terms.

The new royalty scheme would mainly apply to devices that integrate processors with Cortex-A cores. TechInsights analyst Sravan Kundojjala claims that, until recently, Arm has been asking 1-2% per chip, as a Qualcomm processor is selling for US$40, while A MediaTek one sells for US$17 and an Unisoc processor costs US$6. The average price of a smartphone in 2022 was estimated at US$335, yet Arm will probably ask less than 1-2% of that figure.

Arm customers that are both chipmakers and device makers such as Apple will not be affected by the new royalty scheme, according to industry insiders.

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