Arm Wants to Increase Margins, Offers Big Changes to Pricing Model

In the context: Arm’s owner, Softbank, has been struggling financially for some time and is looking to increase profits from its most valuable asset, the Arm instruction set. Chips based on the Arm architecture are found in almost all mobile computing devices, and more recently are also used in servers. With its new pricing model, Arm aims to change how its chip licensing model works.

According to the post Financial Times. According to TechInsights analyst Sravan Kundoyjal, Arm charges a royalty of 1-2% for its current model, depending on the cost of the chip.

Currently, this means that when chip makers like Qualcomm use an Arm design in one of their SoCs like Snapdragon, they pay royalties to Arm based on the value of the chip.

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

The average price of a smartphone chip from Qualcomm is $24, while the average price of a smartphone sold in the US was $299 in 2022. Based on this, Arm intends to increase their profits if they keep the royalties in line with where they are. Today.

In its fiscal year 2022 Q3 earnings, Arm reported $746 million in total revenue, up 28% from last year, all tied to licensing and royalties. Some readers may remember Nvidia’s attempt to acquire Arm for at least $40 billion, a deal that ultimately fell through due to a failure to resolve regulatory issues.

Several people have already pointed out that this move by ARM could enable RISC-V, an open source instruction set architecture that launched in 2015 but had only limited use outside of IoT devices. Given that Arm basically has a monopoly on the mobile device market, and Apple is almost done with the transition to Arm on all platforms, this latest move could open the door to competitors if manufacturers find the new Arm model too expensive.