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Softbank, the company that owns Arm, has been having financial problems for some time and is trying to get more money from its most important asset, the Arm instruction set. Nearly all mobile computing devices use Arm-based chips, which have more recently started to appear in servers. Arm wants to alter the way its chip licensing business functions with a new price model that has been presented.
According to a Financial Times investigation, British chip designer Arm has proposed changing the way they charge for chip licensing. According to Sravan Kundojjala, an analyst at TechInsights, Arm now charges royalties of 1-2% dependent on the value of the chip.
Now, this implies that when chipmakers like Qualcomm employ an Arm design in one of their SoCs like the Snapdragon, they are required to pay Arm royalties depending on the chip’s worth.
With the new arrangement, Arm would levy royalties depending on the average selling price of the devices, which would be a significant change. This would imply that Arm will now bill companies like Motorola and Samsung, rather than Qualcomm.
While the average cost of a smartphone sold in the US in 2022 was $299, Qualcomm smartphone chips typically cost $24. Based on this, Arm intends to increase its revenues, provided they maintain the current level of royalties.
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Arm reported overall revenue of $746 million for Q3 FY22, up 28% year over year, with all of it coming from royalties and licensing. Some readers may recall Nvidia’s failed effort to acquire Arm for at least $40 billion. The transaction collapsed as a result of being unable to resolve regulatory concerns.
A few individuals have already observed that Arm’s action would present RISC-V, an open-source instruction set architecture that was introduced in 2015 but has only seen little adoption outside of IoT devices, with an opportunity. Given that Arm essentially controls the mobile industry and that Apple has nearly completely switched over to Arm across all platforms, this recent step might pave the way for rivals if manufacturers deem Arm’s new model to be too expensive.