Thank you very much for talking to us today. Can we start by looking at your business model? I know that it’s a very distinctive feature of ARM, could you tell us a little bit about how it developed and how it relates to your success over the last two decades?
So our business model we describe as a partnership model. We licence our technology. It’s a very important piece of silicon chip; it’s the brain of a silicon chip; we sell licences to semiconductor companies that give them the rights to develop chips including our technology. We take a fee in exchange for that licence, and then when they supply chips to their customers, we earn a small royalty, typically 1 to 2% of the chip price.
So that’s the business model, and it’s been absolutely crucial to ARM’s success over the years. First of all it’s a very low capital investment, because our assets are our people effectively. It’s very low risk because we’re not investing lots of capital. It gives us tremendous reach, breadth across the marketplace.
So you find ARM technology, 8 billion chips last year, in all sorts of things, from quite powerful computers through huge volumes of things like mobile phones and mobile computers, through to motor controllers, hard disk drives, you name it, there’s ARM technology everywhere. That comes because we licence our technology to nearly 300 semiconductor companies around the world. So we don’t pick winners; we’re not sensitive to particular markets; we’re not sensitive to particular regions; that makes it a very robust and resilient business.
And one of the corollaries of that is that you have a lot of partners, you have this partnership approach, but that includes a lot of fiercely competitive companies. I wonder how you manage that partnership.
Well I suppose, you know, ARM is 21 years old, nearly 22, and I suppose that has developed into one of our areas of core competence. We, of course I would say this, we have excellent technology, but managing the partners is something which is a competence for us, and it’s come through practice. In the early days we used to annoy people, but we imposed a few sort of rules and regulations early on and we've sort of stuck with those, and people come to understand in the end it’s all about economics and it’s better to have, for us to have a small slice of a large pie and it’s better for our customers to share the investment in the development of their chips with their competitors.
They don’t have to through ARM and our competence at handling them, they don’t have to share their secrets with their competitors, but they get to share the investment, they get to share the risk of developing their chips and developing their markets and the ecosystem that sits around them. So it works for them from an economic point of view.
Right. Another feature of technology firms is they're often quite footloose around the world, the global industry and so on. I mean why has the UK remained such an important base for ARM?
The UK remains a base for ARM; we have about 40% of our workforce in the UK. I suppose that’s a coincidence of our birth, you know, we started there, but I maintain that it’s actually been a benefit for us. From a cultural point of view we’re sort of, we’re neither American nor Asian, which means we can sort of speak both languages, and importantly we’re not a Silicon Valley company. That makes us stand out from the crowd in the semiconductor industry.
It’s also meant that we didn’t have access to lots of funding that was available in the 1990s for chip companies starting in Silicon Valley, so because we didn’t have lots of funding we didn’t have the opportunity to waste lots of money. We had to be very careful and make our business stand on its own two feet, and that continues today, and also of course the UK, I believe, produces some excellent engineers, some problem solving engineering people, and you need a variety of different engineering types to supply technology across the broad range of markets that we do.
Thank you, and just lastly, just thinking about I mean the sheer scale of this industry, I think 7.9 billion chips last year from ARM, that has environmental impacts. What do you see as the future for “sustainable” computing and information technology industry?
Well I think you have to consider this in the round. And actually application of technology such as ARM technology makes the world a better place. You know, we are seeing our technology deployed in all sorts of energy saving applications today. We look at things like smart meters; we look at things like electric motors. We can make huge impact on the amount of energy which is used by things like electric motors. You know, 40, 50% savings in the amount of energy used, that means a vast saving in the amount of energy that has to be generated to drive these things, and also in more sort of traditional areas of IT where you'd expect to find our technology, in things like servers, we’re talking about saving three-quarters of the power that’s currently used by these things, by application of our technology.
So I mean yes there’s 8 billion chips out there and they have to be manufactured and there is an environmental impact of that, but I think you have to look at the lifecycle and see what that chip is actually doing in a product as it gets used, and there we’re seeing vast savings of energy and positive impact on the environment.
- Richard Blundel was talking to Warren East after the recording of an edition of The Bottom Line