Arm wants to improve profitability, proposes big changes to pricing model

[broly]

In context: Arm's owner Softbank has been facing financial woes for a while and are looking to increase profits from their most valuable asset, the Arm instruction set. Chips based on the Arm architecture are found in nearly all mobile computing devices, also making their way into servers more recently. With a new proposed pricing model, Arm is looking to change how their chip licensing model works.

British chip designer Arm has put forth a proposal that modifies how they charge for chip licensing, according to a report by Financial Times. With their current model, Arm charges royalties of 1-2% based on the value of the chip, says Sravan Kundojjala, an analyst at TechInsights.

This currently means that when chipmakers like Qualcomm use an Arm design in one of their SoCs like the Snapdragon, they pay Arm royalties based on the value of the chip.

The new proposed model would implement a big change, where Arm would charge royalties based on the average selling price of the devices. This would mean that instead of charging Qualcomm, Arm would now charge manufacturers like Motorola and Samsung.

The average price for a smartphone chip from Qualcomm is $24, while the average price for a smartphone sold in the US was $299 for 2022. Based on this, Arm means to boost their profits, granted if they keep the royalties inline of where they are today.

In their Q3 FY22 earnings, Arm reported total revenue of $746 million, up 28% year on year with all of that stemming from licensing and royalties. Some readers might remember Nvidia's attempt of taking over Arm for the sum of no less than $40 billion, a deal that ultimately fell through after failing to overcome regulatory issues.

A few people have already pointed out that this move by Arm might give an opportunity to RISC-V, an open source instruction set architecture that launched in 2015, but has only seen limited use outside of IoT devices. Seeing as Arm basically has a monopoly on the mobile market, and Apple having almost completed their switch to Arm across all platforms, this latest move may open the door for competitors if manufacturers find Arm's new model too pricey.

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https://www.techspot.com/news/98074-arm-wants-improve-profitability-proposes-big-changes-pricing.html

 

[VariableSpike]

Exactly what I was going to point out, arm enjoy a massive monopoly on the architectures for the mobile and embedded markets, and it would be super dumb to push their key buyers to a point they don't like price wise and let them look at other options, especially RISC V, which has some foothold for IoT devices, but of course benefits from an open source model, so for those companies it's not like they'd have to shell out money for licenses and have room to experiment before they even think about switching

 

[psycros]

"The new proposed model would implement a big change, where Arm would charge royalties based on the average selling price of the devices. This would mean that instead of charging Qualcomm, Arm would now charge manufacturers like Motorola and Samsung."

That...makes absolutely no sense. Literally nobody will go along with this.

"In their Q3 FY22 earnings, Arm reported total revenue of $746 million, up 28% year on year with all of that stemming from licensing and royalties."

Most of a billion dollars in one quarter and they didn't build a thing to earn it. This is pure residual. ARM has an incredibly good thing going and their fools to risk it.

 

[Theinsanegamer]

Ridiculous. Nobody in the industry does this. Intel doesnt get more money for a CPU if it goes into a more expensive laptop. Neither does anyone else. ARM is not entitled to this.

This will drive the industry to wholesale invest in RISC V processors and tell ARM to go stuff it.

"The new proposed model would implement a big change, where Arm would charge royalties based on the average selling price of the devices. This would mean that instead of charging Qualcomm, Arm would now charge manufacturers like Motorola and Samsung."

That...makes absolutely no sense. Literally nobody will go along with this.

"In their Q3 FY22 earnings, Arm reported total revenue of $746 million, up 28% year on year with all of that stemming from licensing and royalties."

Most of a billion dollars in one quarter and they didn't build a thing to earn it. This is pure residual. ARM has an incredibly good thing going and their fools to risk it.

Greed, my friend. Unfettered greed.

Exactly what I was going to point out, arm enjoy a massive monopoly on the architectures for the mobile and embedded markets, and it would be super dumb to push their key buyers to a point they don't like price wise and let them look at other options, especially RISC V, which has some foothold for IoT devices, but of course benefits from an open source model, so for those companies it's not like they'd have to shell out money for licenses and have room to experiment before they even think about switching

It's going to end up happening. The mobile market already suffers from low margins and profits, ARM's suggestion will bankrupt all but samsung and apple.

At this rate Apple will end up owning ARM once everyone else jumps to RISC V and significant investment is made. All they need is a greed infused push.

 

[YouShallNotPass]

Why not go one step further and charge based on how rich the buyers are? XD

 

[Watzupken]

Increasing the royalties for using their SOC design, I get it. But taking a cut based on the entire device sold don't make sense because ARM don't contribute to the manufacturing cost of the entire device.

If they choose to enforce this, it will benefit them in the short to medium term because device makers don't have an alternative now. But it will hasten the adoption of RISCV chips as an alternative.

 

[Uncle Al]

Regardless of what "they" think, it will be the buying marketplace that will decide a fair price simply by buying or not buying under their newest structure and how long that will be tolerated.

 

[GoldenGoat]

That model could backfire on them if manufacturers increasingly sell devices at a loss and get their profits through app store fees, selling data about users, or other similar tactics.

 

[BobDolesGhost]

Queue Vader "I am altering the deal. Pray I don't alter it any further"

 

[Bamda]

Oh damn, that Apple, Nvidia, and Google, the device is going to get more expensive.