ARM’s past
Get to know ARM first
If you don’t know much about the company Arm, I suggest you read my previous posts of “How does the ubiquitous Arm make money?” and “Why nVidia failed to acquire ARM?“
ARM in the past
In the past, ARM lived mainly on royalties. When this company went public 20 years ago, its stock price was very low for many reasons. At that time, it was the golden age of personal computers. Mobile devices such as smartphones and tablets had not yet appeared. There were very few devices using the Arm platform instruction set, which also affected the company’s revenue.
ARM before and after the relisting
Before and after the second listing of Arm, smartphones and tablets, as well as the Internet of Things and self-driving cars, various devices appeared again and again. Most of them were devices using the Arm platform instruction set. Compared with 20 years ago, , there are countless devices using the Arm platform command set like a flash flood. The strange thing is that, although it has increased significantly compared with 20 years ago, Arm’s revenue has not increased proportionally.
This is also the main reason why parent company SoftBank really can’t stand it and wants it to be listed again. But as of April this year, up to 90% of Arm’s shares are still held by SoftBank.
Significant changes in business operations
Revenue relies on Intellectual Property
ARM makes money by licensing its chip designs to semiconductor companies and hardware manufacturers. Skeptics have questioned the value of the company’s technology for decades. Its designs typically earn just a few cents per wafer.
Times have changed. On February 7, 2024, Arm delivered the results Wall Street expected for its December quarter, while providing an outlook that was well above Wall Street consensus. The main drivers are the shift toward higher royalty rates and gains in the cloud server market. “The artificial intelligence wave is driving licensing growth because these new devices require efficient and energy-efficient computing platforms,” Chief Executive Rene Haas wrote in a letter to shareholders.
The way ARM charge customers changed
The V9 architecture licensing fee is twice that of v8, about 4% to 5%. The licensing fee for another Arm Total Computing Solution (TCS) is four times higher than in the past, between 8% and 10%. Arm hopes that customers adopt these two sets of designs, so that it can increase its licensing revenue.
Arm’s latest advanced chip technology is called Arm v9, and its patent rates are double those of the previous Arm v8 product. For some high-end processors with more than 100 “cores,” ARM’s designs currently generate profits of more than $100 per chip. This is a huge change compared to previous generations.
The Arm Total Computing Solution (TCS) released in 2021 significantly reduces the complexity of SoC design, thereby reducing engineering costs and resource consumption, and shortening product time to market, assisting device manufacturers to focus more on realizing their real business Value, launch differentiated hardware and software.
It was such a change in licensing methods, coupled with optimistic expectations for future operations, that Arm’s stock price soared 58% the day after the quarterly report was released! Since the financial report was released after the U.S. stock market closed on February 7, Arm’s share price rose by more than 100% in three trading days.
Launch of CSS platform
Neoverse V3 is Arm’s first V-series product. While Arm is releasing technology, the TotalDesign ecosystem it will gather efforts from all walks of life to build in 2023 will also become stronger. Arm’s application partners are Professionals in various technical fields promote the development of customized SoC based on Neoverse CSS, including special application chip design companies, smart material suppliers, EDA, wafer fabs, and firmware developers.
In short, ARM Terminal CSS includes a complete combination of “architecture + process + software optimization”, allowing products designed using the new architecture to be mass-produced faster. Arm has even appointed Intel as the wafer manufacturer. This plan breaks Arm’s past practice of not being involved in customer product development, design, and production – the advantage is that it will allow more chips that are small in scale and lack resources. Design customers can shorten the time for product launch.
Hop aboard the artificial intelligence train
On June 3, 2024, Arm CEO Rene Haas stated at the Computex Forum that it is expected that by the end of 2025, 100 billion Arm devices will be ready for artificial intelligence applications worldwide.
See my following post on this topic:
- “AI PC is changing the PC supply chain and ecosystem”
Betting on the PCs
Microsoft executives predict that Arm-based notebook shipments will reach 1 million to 2 million units by the end of this year, accounting for 5% of the Windows camp.
Please see my following posts on this topic:
- “Qualcomm PC might bring it back to glory”
- “How much potential does ARM’s WOA (Windows on ARM) has?“
Capital market performance
Brilliant revenue
ARM has made significant progress in the field of technology. The company recently reported two consecutive quarters of record revenue growth, which it attributed primarily to an increase in non-royalty revenue, particularly licensing revenue, as well as an increase in royalties. ARM recently announced excellent results for the fourth quarter of fiscal year 2024, with revenue increasing by 47% year-on-year.
Included in major indices
Arm’s inclusion in the Nasdaq 100 Technology Index ETF and other related technology indexes is based on the company’s market capitalization and demonstrates its importance in the technology industry. Highlighting the company’s growing influence in the technology industry, its market capitalization and adjusted market capitalization in the technology industry were recognized.
Share price performance
Data show that Arm has a market capitalization of US$161.87 billion, reflecting its huge influence in the technology field. The company has a high price-to-earnings (P/E) ratio of 491.26, and its trailing twelve-month adjusted P/E ratio was even higher at 529.62 through the fourth quarter of 2024. This suggests investors are willing to pay a premium for ARM shares, possibly because of the company’s growth prospects or market position.
Driven by the huge growth space brought by the AI concept, Arm’s share price has grown by nearly 150% in the past year, and its market value has also expanded sharply to US$165 billion, even surpassing traditional chip giant Intel (less than US$130 billion). SoftBank, Arm’s largest shareholder, made a lot of money as a result, completely getting out of the trough of a series of previous failed investments.
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