When chip developer Arm soon sells shares in this year's most intense initial public offering (IPO), it will represent many one of them is the ultimate Americanization of a great British company.
Born from the ashes of Acorn Computers in Cambridge 33 years ago, Arm was a member of the FTSE 100 until it was taken over by Japanese investment group SoftBank for £24bn. in 2016.
When this deal was being considered by Arm's board of directors in the weeks following the Brexit referendum, its directors took into account years of experience gained from established British brands including EMI, easyJet, Vodafone and Pilkington.
Reappearing on the public market on across the Atlantic with an estimated $60 billion valuation, Arm will be led by a board redesigned with Wall Street in mind and including former executives from AOL, Intel and Qualcomm.
They echo the American skewed leadership of the 13-person company, whose members are primarily based in the US and frequent Arm's headquarters on Rose Orchard Way in San Jose, California. This base is 5,000 miles from her green Cambridge, where she was born and is still considered the group's global headquarters.
Yet Arm might have expected it to become more American sooner, given that the US accounts for about half of all microchip revenue in an industry where sovereignty is paramount and the US and China vie for supremacy.
In fact, the company may have been acquired by archrival Intel in its early years, long before SoftBank hatched a plan to turn it into AI leader Nvidia. The move was blocked by the antitrust authority in early 2022, causing Arm to follow the path of today's IPO.Softbank boss Masayoshi Son decided to locate Arm in the US rather than the UK, which dealt a blow to Rishi Sunak's tech ambitions. : REUTERS/Kim Kyung-Hoon
Given the UK's patchy track record of turning its tech companies into world leaders, the fact that its microprocessor designs are licensed 1,000 times per second for use in smartphones, laptops, industrial sensors and cars generates a few cents in fees every time is a reason for joy.
Arm would have been cheered louder at home if only SoftBank CEO Masayoshi Son had succumbed to Rishi Sunak's persuasion and agreed to refloat Arm here.
Despite it currently supporting 2,800 well-paying jobs in Cambridge, is the choice of Wall Street ahead of the City of London a turning point for a company that remains the flagship of a British tech company?
The company has benefited from US influence from day one. If Apple hadn't been looking for a new processor for the portable device it designed years before the iPhone, the Arm project would have been phased out inside Acorn. For a modest $2.5 million, Apple entered into a joint venture with its former home computer competitor, and Arm formed a company to serve both of them and see if it could build a broader customer base.
Even this nascent technology was developed in America. In an effort to beat the competition, Acorn's lead engineers, Roger, and then Sophie, Wilson, and Steve Ferber, became enamored with a 1981 design by UC Berkeley to build a high-performance central processing unit on a single chip.
The rationale behind the design of a reduced instruction set computer (RISC) was that 80% of the time the chip used only 20% of its instructions, so the rest could be removed to reduce cost and power consumption and tasks could be broken down into several simple instructions.
Other RISC projects focused on high-end business workstations, but Wilson and Ferber favored the mass market. Their Acorn RISC Machine — later Advanced RISC Machines (ARM) — was 25 times faster than the best-selling BBC Micro computer.
A design used in Acorn Archimedes in 1987 and six years later in the MessagePad, which also became known as Newton. A few years later, the take-off came in 1997 with the introduction of Nokia's first arm-designed mobile phone, the 6110, which also included the addictive Snake game.
The photo of the phone made Arm's first IPO prospect in 1998 a success, especially among US fund managers, in a market that at the time lagged behind Europe in terms of fancy mobile phones.
The Arm Instruction Set Architecture (ISA) — a digital set of rules that defines how the microprocessor in any device is controlled by software — expanded its reach, and so did the company. The company entered the US market in August 2004, paying $913 million for Artisan Components, its first major acquisition, which was poorly received by investors, who dropped the stock 18% the same day.
Arm chips have been used over 200 billion times. Photo: Chris Ratcliffe/Bloomberg
In hindsight, some Arm executives thought the Artisan deal was the right idea at the wrong price—and it may even have been the wrong goal. Few realized — and the company didn't publicly acknowledge — that Arm viewed the deal as an insurance policy in its long-term feud with Intel, the American microchip giant chafed by the British upstart's colonization of the mobile space.
The deal certainly led to shifting Arm's location towards the US West Coast, where many of its clients were also based.
Leadership followed. Senior chief executive Simon Segars moved with his family from Cambridge in 2007 to fix an initially problematic integration, which immediately made him the favorite to succeed Warren East as Arm boss when a vacancy arose in 2013. Some insiders expected Segars to return to the UK in 2013. at that time, but he decided to stay in the US.
The company is now led by veteran American René Haas, a fan of the Los Angeles Lakers basketball club, who often dresses head to toe in black, like his Silicon Valley counterparts.
The culture has hardened before his eyes. Inside Arm have selected blue sky research projects to focus on more commercially viable activities. In the foreign market, the company explored various pricing models in order to increase margins.
Thanks to Arm's ubiquity, there are low fees. His designs have been used 250 billion times. But this has led to disappointment that the company has missed out on the opportunity to grow and skyrocket the cost of its semiconductor counterparts.
What is risky is to try to shift the cost calculation from a fraction of the cost of a chip to a fraction of the cost of an end device such as as an automotive component or a tablet computer.
What's easier to capitalize on is putting your designs into more expensive chips, like those that power computer servers that store a lot of data remotely. Custom-built by cloud computing market leader Amazon Web Services (AWS), Graviton chips feature the blueprints of Arm.
After 15 years of trying, the company's breakthrough in this area will no doubt be flagged as a key growth opportunity when it comes to before attracting new investors this fall.
Under the leadership of American René Haas, Arm focused on more profitable businesses. Photo: David Paul Morris/Bloomberg
There will also be buzz around AI, whose applications are portrayed as a step forward for computing, but from ARM's point of view, still require the performance and power efficiency gains it is accustomed to. And before AI starts generating significant revenue, the company could point to a 5.7% increase in sales last year, which is commendable after the smartphone market downturn, from which it aims to demonstrate it can diversify.
The biggest indicator of corporate change came last summer when Arm sued Qualcomm, one of its biggest customers and a key developer of 5G technology, alleging license violations and trademark infringement.
Arm has demanded the destruction of some designs it says were donated without its consent by Nuvia, a startup acquired by Qualcomm a year earlier and created by a group of ex-Apple chip developers.
It was a classic semiconductor industry spat with parallels dispute between mobile giants Apple and Samsung that lasted for years. However, Arm rarely got sucked into something where the stakes were so high.
Qualcomm's use of Arm designs is expected to increase its market share in the personal computer and automotive markets. The American company believed it had licenses to Nuvia's technology and said the September 2024 lawsuit marked an «unfortunate departure» from the couple's longtime relationship.
This aggressive tone is reflected in moves that can check out Arm's longstanding independence from the industry. Success in bringing in Nvidia and others as anchor investors ahead of the IPO will certainly boost the company's value, but how can you reassure those of its 1,000 partners who haven't been invited to buy in advance?
On the eve of the IPO of this stock sale, Is Arm still a quirky British intruder with a unique business model, or just another cutthroat American tech asset dreaming of multipliers like Tesla? Both descriptions are currently resonating. But its future success, whether British or American, depends on embracing the only culture Wall Street has: growth at all costs.
James Ashton's The Everything Blueprint, Arm's history and place in the world semiconductor business. ecosystem published by Hodder & Stoughton.
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