Exclusive technology supplier Arm plans to raise prices, has considered developing its own chips by Reuters

Written by Max A. Cherny and Stephen Nellis

SAN FRANCISCO (Reuters) – arm Holdings (NASDAQ:), a technology supplier to chip companies, is developing a long-term strategy to raise prices by up to 300% and has discussed designing its own chips in a move to compete with its largest customers.

For decades, the British company kept a low profile while operating at the heart of billions of dollars in annual chip sales. It licenses the intellectual property that Apple (NASDAQ:), Qualcomm (NASDAQ:), Microsoft (NASDAQ:) and others use to design their chips, and charges a small fee for each chip produced using Arm technology.

Despite being a key player in the rise of smartphones and energy-efficient data center chips, Arm has remained small compared to its customers, with revenue of $3.23 billion for fiscal year 2024. In its final fiscal year, Apple’s revenue from its hardware products, all of which Powered by arm-based chips, it was more than 90 times larger.

But Masayoshi Son, CEO of SoftBank (TYO:) Group, which owns 90% of Arm, and Arm CEO Rene Haas, are determined to change that, according to plans revealed in a trial last month in which Arm aims to… Feasibility to secure higher equity. Prices from Qualcomm. Details of Arm’s ambitions, which are described in court testimony and documents that remain under seal, have not previously been reported.

Arm and Qualcomm declined to comment.

ARM’s plans, known in its early stages as Project Picasso and dating back to at least 2019, aim to increase annual smartphone revenue by about $1 billion over about 10 years, according to sealed executive testimony.

Arm plans to achieve this in part by increasing the per-chip royalty rates that customers pay for off-the-shelf parts of chip designs that use its latest computing architecture, called Armv9.

During the trial, documents were shown dating back to August 2019, in which Arm executives discussed a 300% rate increase. In December 2019, then Arm CEO Simon Segars told Son, Arm’s chairman, that Arm had struck a deal with Qualcomm to use off-the-shelf technology under the “Picasso” initiative.

But Qualcomm and other big customers like Apple are sophisticated enough to design their own chips from scratch using Arm’s architecture without needing Arm’s pricier off-the-shelf offerings, which means they won’t necessarily be subject to all these price increases.

“We have legacy agreements with Qualcomm and Fender,” Haas said in a Microsoft Teams chat held on the day Qualcomm bought Nuvia in 2021, as shown in the trial. The startup will help Qualcomm use less of its off-the-shelf Arm technology.

“Fender” is Arm’s internal code name for Apple. Apple declined to comment.

“Cold” to customers

After SoftBank acquired Arm in 2016, the British company’s computing infrastructure went from powering smartphones to making major inroads into the PC and data center markets.

Plans discussed by Arm executives included the possibility of getting closer to designing a full Arm-specific chip, according to testimony and documents at trial. Arm sells chip design blueprints, but most of its customers still spend months completing a chip design.

“It was new to me that Arm was thinking about ‘making its own chip,’” said Prakash Sangam, founder of Tantra Analyst, who attended the trial. “It should send a chill down their customers’ spines.”

At trial, Qualcomm’s lawyers showed a slide of a presentation Haas gave to Arm’s board in February 2022 when he applied to become the CEO who suggested Arm change its business model. Instead of selling just the blueprints for chips, Arm should sell chips, or microchips, a smaller building block used to make some processors made by Advanced Micro Devices (NASDAQ:) and others, Haas said.

In a conversation with another Arm executive a few months ago, Haas expressed confidence that Arm could compete against its customers if it brought a chip to market, according to testimony and documents.

“(The rest) has been cleared,” Haas said in a Teams message from December 2021, which was shown during the trial, referring to issues that chip companies like Qualcomm might face in competing with Arm’s full chip design.

During the trial, Haas downplayed those comments, saying they reflected long-term strategic maneuvering that many executives make with their colleagues and board members.

Although Arm has never gotten into chip design, he is always thinking about possible strategies, Haas said.

“That’s all I think about, is the future,” he told the eight-person jury.