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ARM Holdings Whisper

ARM Holdings Whisper
 

Research Question: Will ARM Holdings see a significant boost in 2015 revenue from smartphone royalties and its new system-on-a-chip server architecture?

Companies Covered: ARM Holdings (ARMH), NVIDIA (NVDA), Intel (INTC), Advanced Micro Devices (AMD), Qualcomm (QCOM), Samsung (KRX: 005930), Applied Microcircuits (AMCC)

Report Available: August 21, 2014

 

Blueshift’s initial research shows ARM Holdings not seeing much growth in its mobile device royalties, while making an entry into the microserver system-on-a-chip market, despite Intel’s dominance, by partnering with large firms like AMD and Applied Microcircuits.

 

Observations

  1. ARM has begun pushing its way into the system-on-a-chip (SOC) market, marketing its popular energy-efficient chips usually seen in mobile devices into microservers. Its 64-bit chip is currently being rolled out in AMD and AMCC servers. By 2017, ARM believes it will achieve a 10% market share in the SOC server market. Various analyst firms have forecast robust growth in the microserver SOC market through 2017, ranging from $1 billion to $3 billion in SOC sales.
  2. NVDA and Samsung recently abandoned their plans to develop microservers using ARM chips as both companies realized the return on investment would fall short of expectations given Intel’s dominance in the market. INTC currently has a 95% market share in the SOC server market and recently dropped its prices and added newly designed customized server chips in response to ARM’S entry. ARM may win some server market share from INTC, but few believe any one company can win enough to justify the expense of entering the SOC server market. QCOM has been working on server chips but has not announced any plans to introduce them. Many IT decision makers have recently stated that the benefit from ARM’s microserver products is not great enough to make a switch.
  3. Overall 2014 smartphone sales are expected to increase from 968 million to 1.2 billion or 1.3 billion devices in 2013, representing a 39% slowdown in annual growth rate. About half of ARM’s revenue comes from mobile products. ARM states that despite slower growth rates in high-end smartphones, it expects full year 2014 processor royalty revenues to grow in the 19% to 20% range, a similar rate it reported over the last three years. However, between January and March 2014 revenues from royalties only grew 3%, which was substantially slower than 2013’s 32% growth. ARM royalty fees for mobile phones bring in 20 to 40 cents per phone. A recent study found that 30% of a smartphone’s total cost is made up of patent royalties. Companies capturing the most royalty fees per phone based on a $400 device include QCOM ($13), Motorola ($9) and Alcatel-Lucent ($8).
  4. Blueshift’s Sept. 2010 and Jan. 2011 reports on ARM showed the company expanding into new product areas, with particular interest in the server space. Our research found that ARM’s low-power design with high performance per watt could help companies save on the cost of cooling systems and overall energy costs. ARM was becoming the standard chip design in wireless consumer devices and was making a leap into tablets. Its rise positioned the company as more of a competitor to INTC and AMD.

 

To determine if ARM will see a revenue boost in 2015 from increased smartphone royalties and its new server chips, Blueshift will gather data and issue a market research report from independent sources in the following areas: Executives with data center functions at web scale companies, software developers, OEMs, VARs, smartphone supply chain, and industry specialists.

 

To see other ideas Blueshift Research is currently working on, please click here.