Exclusive-Tech Supplier Arm Plans to Raise Prices, Considers Developing Own Chips Reuters

By Max A. Cherney and Stephen Nellis

SAN FRANCISCO (Reuters) – Hand Holdings (NASDAQ: ), a technology supplier to chip companies, is developing a long-term strategy to raise prices by as much as 300% and has discussed designing its own chips in an attempt to compete with its biggest customers.

For decades, the British company kept a low profile while operating at the center of billion-dollar-a-year chip sales. It licenses the intellectual property that Apple (NASDAQ: ), Qualcomm (NASDAQ: ), Microsoft (NASDAQ: ) and others use to design their chips, charging a small fee for each chip made with Arm technology.

Despite playing a central role in the rise of smartphones and energy-efficient chips for data centers, Arm remains small compared to its customers, with $3.23 billion in revenue for fiscal 2024. In its most recent fiscal year, Apple’s revenue from its hardware of products, all of which are powered by Arm-based chips, was more than 90 times higher.

But Masayoshi Son, chief executive of SoftBank ( TYO: ) Group, which owns 90% of Arm, and Arm CEO Rene Haas are determined to change that, according to plans revealed in last month’s trial in which Arm unsuccessfully tried to secure higher price royalties from Qualcomm. Details of Armo’s ambitions, described in court testimony and documents that remain under seal, have not been previously released.

Arm and Qualcomm declined to comment.

Known in its early stages as Project “Picasso,” Armo’s plans, which date back to at least 2019, aim to grow annual smartphone revenue by roughly $1 billion over about 10 years, according to sealed executive testimony.

Arm planned to achieve this in part by increasing the per-chip royalty rates that customers pay for off-the-shelf parts of chip designs that use its latest computer architecture, called Armv9.

During the trial, documents from August 2019 were presented in which Arma executives discussed a 300% rate increase. In December 2019, Arm’s then-CEO Simon Segars told Son, Arm’s board chairman, that Arm had secured a deal with Qualcomm to use off-the-shelf technology under the “Picasso” initiative.

But Qualcomm and other big customers like Apple are sophisticated enough to design their own chips from scratch using Arm’s architecture without needing Arm’s more expensive off-the-shelf offerings, meaning they wouldn’t necessarily be subject to all those rate hikes.

“We have rough legacy deals with Qualcomm and Fender,” Haas said in a Microsoft Teams chat held on the day Qualcomm bought Nuvia in 2021, which was shown in the preview. The startup will help Qualcomm use less of Arm’s off-the-shelf technology.

“Fender” is Arm’s internal code name for Apple. Apple declined to comment.

‘CILL’ FOR BUYERS

After SoftBank bought Arm in 2016, the British company’s computer architecture went from smartphone startups to making major inroads into the PC and data center markets.

Plans discussed by Arm executives included potentially moving closer to making a complete in-house chip design, according to testimony and documents at the trial. Arm sells chip design blueprints, but most of its customers still spend months finalizing chip designs.

“It was news to me that Arm was even thinking about (making its own chip),” said Tantra Analyst founder Prakash Sangam, who attended the trial. “That should send shivers down their spines.”

At the trial, Qualcomm’s lawyers showed a slide from Haas’ presentation to Arm’s board in February 2022 when he applied for the CEO position that proposed Arm’s business model change. Haas said that instead of just selling chip blueprints, Arm should sell chips, or chiplets, the smaller building blocks used to make some processors made by Advanced Micro Devices (NASDAQ: ) and others.

In a conversation with another Arm executive a few months earlier, Haas expressed his belief that Arm could compete with its own customers if it brought the chip to market, according to testimony and documents.

“(The others) are vanity,” Haas said in a December 2021 Teams message shown during the rehearsal, referring to the problems chip companies such as Qualcomm would face in competing with a complete Arm chip design.

During the trial, Haas downplayed those comments, saying they reflected the long-term strategic spat many executives do with colleagues and board members.

Haas said that while Arm has never entered the chip design business, it is always considering possible strategies.

“That’s all I think about, that’s the future,” he told the eight-member jury.