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Company Overview

ARM Holdings plc is the world's leading semiconductor intellectual property (IP) supplier. The technology we design is at the heart of many of the digital electronic products sold.
ARM has an innovative business model. Instead of bearing the costs associated with manufacturing, we license our technology to a network of partners, mainly leading semiconductor manufacturers and OEMs. These partners utilise our designs to create smart, low energy chips suitable for modern electronic devices.

Why semiconductor companies use ARM technology

The design work that ARM does requires a large amount of R&D investment and expertise. Every semiconductor company would need to spend between $50 million and $150 million every year to reproduce what ARM does. This represents an additional $20 billion of annual cost for the industry. By designing once and licensing many times, ARM spreads the R&D costs over the whole industry and thereby helps make digital electronics cheaper.

How ARM makes money

The partner companies who adopt ARM technology pay an up-front licence fee to gain access to a design and also a royalty on every chip that uses the licensed design. A single licence is the starting point for many different ARM Powered® chip designs and in 2012, ARM partners shipped nearly nine billion ARM Powered chips. Our designs are used in more than 95% of the world's mobile phones and are increasingly designed into a wide range of other digital electronic products.

How ARM creates value for investors

ARM aims to recover its costs from the future licence revenues of each new technology. This would leave the majority of royalties as profits. Over the medium term, we expect royalties to grow much faster than licence revenues and costs, making ARM increasingly profitable.

As our customers are the world's largest semiconductor manufacturers, their regular royalty payments have become a highly reliable cash flow. Given our broad base of partners and end markets, ARM is not overly reliant on any one company or consumer product for its future profits and cash. Since 2004, ARM has returned over £525 million of cash to shareholders through a mixture of share buybacks and dividends.

How the ARM business model works

ARM licenses technology designs to semiconductor companies. The licence fee is typically several million dollars, dependent upon which technology has been licensed and the type of licence. The semiconductor company will design and manufacture a chip utilising the ARM technology. The chip will then be incorporated into a digital electronic product, which is sold to the consumer.

ARM receives a royalty, typically based on a percentage of the chip price, for every chip sold by the semiconductor company containing ARM technology. It takes an average of 3-4 years from the time the semiconductor company signs the licence until they start to pay royalties. Many customers are able to re-use the same ARM technology in many different chips going into a broad range of end markets. Each new chip starts a new stream of royalties.

How the ARM business model works illustration.

How ARM drives growth

ARM has three major revenue growth drivers

Growth in mobile applications:
As mobile devices, such as smartphones, become increasingly sophisticated they require more semiconductor chips within them. Many of these chips can contain ARM technology. As the number of chips per device increases, and as the value of each chip increases, so ARM's royalty per mobile device grows. Between 2008 and 2012 the royalty ARM received per mobile device increased by 18%.

Growth beyond mobile applications:
ARM technology is being increasingly used in applications such as digital TVs, hard disk drives, washing machines and many other products that require smarter chips, and that are making our lives easier, safer and more energy efficient.

Growth into new technology outsourcing:
ARM is applying our business model to other technologies that the semiconductor industry is looking to outsource. ARM is already seeing success in licensing physical IP, and graphics technology. These technologies add incremental royalty per chip and so further increases ARM's value per device.

ARM ecosystem

ARM has built up an extensive community of 3rd party technology providers and designers, called the ARM Connected Community. This is designed to facilitate the networking opportunities for the member companies in an effort to increase design win opportunities and shorten the time-to-market of complete ARM Powered® solutions. There are currently about 1000 companies within the Community spanning the semiconductor supply chain. This Community not only serves to enable the uptake of ARM technology, but also as an extensive competitive advantage and barrier to entry for IP companies providing technologies in the same areas as ARM

ARM's Connected Community Partners Logo Panel