ARM's strategy is for our technology to continue to gain market share in long-term growth markets, to increase the value ARM receives from each device, and to develop new technologies that can generate additional royalty revenue. In achieving this we intend to balance increasing investment in R&D and increasing shareholder returns, whilst at the same time ensure that ARM is a great place to work.
Our strategy for long-term growth
ARM's strategy is for our technology to continue to gain market share in long-term growth markets, to increase the value ARM receives from each device, and to develop new technologies that can generate additional royalty revenue.
ARM has three major revenue growth drivers
Which will led to increased re-investment in the business and increasing shareholder returns
Increase market penetration
ARM has achieved a more than 95% penetration of mobile handsets. As other end markets require smarter processors, we expect ARM technology to increase market share in other application areas.
ARM has been at the centre of the development of smarter mobile phones and the introduction of mobile computers such as tablets. The majority of these chips are based on our technology, and ARM is already licensing processors for future generations of computers. Over the last decade, ARM has also developed processors that are suitable for digital devices outside of mobile, and more influential market leaders are making long-term commitments to use our technology in a broadening range of end-markets.
We gain share as semiconductor companies increase the use of our technology in their chips. They utilise our technology because it is cheaper for the semiconductor manufacture and their customers to use ARM technology in their chips than to develop their own proprietary processor and to maintain their own ecosystem. ARM is further developing both new technology and a richer ecosystem so that semiconductor companies will continue to adopt our technology.
To gain share in markets such as hard disk drives, digital TV and microcontrollers we are nurturing new ecosystems and developing new partnerships. It took ARM ten years to gain a high penetration of mobile phones and although the rate at which each market will adopt ARM technology may be different, the underlying market dynamics are similar.
Increase value per smart electronic device
As consumer products become smarter they often contain multiple ARM-based chips, increasing our royalty opportunity. Smarter phones and TVs can generate 5–20 times more royalty than a basic model.
As smartphones are continuing to get smarter, more connected and capable, even more functionality is being introduced to each handset. ARM is working at the forefront of this R&D to ensure that we are developing the right technology to further increase the number and value of ARM based chip per device.
As other consumer electronics products become smarter and more connected they may also contain more ARM-based chips.
Generate additional royalties from complementary technology
ARM has introduced complementary technologies which we believe are suitable for R&D outsourcing and can command an upfront licence fee and an ongoing royalty.
Over the last few years ARM has introduced two major new technologies that fit these criteria:
ARM is now licensing these technologies to leading semiconductor companies.
Re-investment and shareholder return
ARM's financial discipline balances the need for continued investment to generate long-term future growth, whilst increasing today's profitability and shareholder returns.
In the medium term, we believe that we can grow our revenues faster than our costs. This financial discipline will lead to increases in our profitability, free-cash-flow and distribution of excess cash to shareholders.