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Cheap as chips? Not so fast…

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Fortnightly markets column

Chris Woodcock monitors the markets, keeping a careful eye on the biggest technology stocks in the world. Every fortnight he’ll bring you his latest insights on market movements and more.

Following Intel’s new range of mobile device chips, Chris Woodcock assesses the future for ARM – one of Britain’s biggest tech success stories.

A monopoly on mobile

Last week saw the gigantic Computex event take place in Taipei and it proved to be quite an important week for Intel in particular. Not only did their latest ‘Haswell’ chip series make its debut in the wild but Samsung chose the event to announce their updated Galaxy tablets. The 10-inch version will feature an Intel processor, which marks Intel’s first serious design win in the mobile arena and has given a headache to UK company ARM.

It is not always well understood what a monumental impact this small Cambridge-based outfit has had in the smartphone era. They specialise in designing blueprints (‘architectures’ in the parlance) for low powered chips. ARM do not manufacture their own chips; nor do they even complete the design process for specific chips. Instead, these blueprints are used by the likes of Apple and Qualcomm to build the processors for devices like the iPhone and Samsung’s Galaxy S series.

It is hard to overstate how successful the company has been. ARM architectures power 95% of today’s mobile devices. It is estimated that they save the semiconductor industry a combined $20 billion by providing these blueprints to anyone willing to pay a small royalty, rather than each company having to do the work themselves. In the UK they employ around 2,000 people and are the very model of a post-manufacturing, high-technology, specialised business.

The question now, with Intel’s success in the Galaxy Tab 3, is whether this is the beginning of the end for ARM’s brief ascendancy.

The right to bear ARM

There are at least three reasons for thinking that this would be a premature conclusion.

The first two are slightly technical so I will be brief. At the high end it involves the kind of bizarre love triangle that typifies the semiconductor industry, and in which there is no room for Intel. Below this, well, maybe in the future I’ll devote a whole column to a firm called Mediatek and the phenomenon that is Chinese shanzhai (imitation) and ‘white box’ phones.

The final reason, however, is the most important. As described by former Harvard fellow James Moore in his recent ebook Shared Purpose, the key to ARM’s success goes way beyond the right (low power) product, but is much more about the ecosystem they have created. In it, hundreds of firms are collaborating and competing around the ARM standards, each laser-focused on their core specialisation, but using a “wildly inclusive” approach to catalyse the productivity of a swarm.

The upshot is that an army of companies have a stake in the success of the ecosystem. In particular there are profits at every layer of the supply chain. It is not lost on the swarm that in the PC world, 95% of the profits are taken by two firms – Microsoft and Intel. Notwithstanding Samsung’s decision, Intel faces a difficult battle to gain acceptance and the partnerships needed to participate.

The finer things

In fact, it is much more likely that the ecosystem, emboldened by the mobile experience, moves on another Intel heartland in servers – the high end of computing. ARM has just launched its first 64-bit chip design with the aim of goading its partners into doing just that.

Rather than diminish, the influence of this fairly small British firm with their somewhat new age attitude to business is set to extend further.

 

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