How ARM grew its legs

World-leading chip designer ARM is the stand-out British tech success of the past 20 years. Here's the company's secret formula.

by Andrew Saunders
Last Updated: 04 Feb 2015

Formative years

 

The roots of Cambridge-based ARM date back to the early days of Silicon Fen and the BBC Microcomputer of the 1980s on which a generation of British tech talent cut its teeth (when they weren't playing Planetoid or Killer Gorilla anyway). The BBC Micro's maker, Acorn, invented a new, very efficient type of microprocessor called a RISC - Reduced Instruction Set Computing - chip and in 1990 ARM was set up to capitalise on this new wheeze.

RISC by name, not too risky by nature, as it turned out - the new chips used much less power than conventional rivals, making them perfect for the new generation of battery-dependent portable electronic gadgets that was taking off at the time.

ARM was profitable inside three years and has never looked back.

Recent history

 

Just as mobiles and PDAs fuelled ARM's initial lift-off, so the smartphone has propelled it fully into orbit.

The firm's licensing model means it can remain commercially neutral and sell to customers that compete with one another. As a result, it now has 32% of the global chip market, twice as much as closest rival Intel, and a whopping 95% of the smartphone market.

If it's electronic and fits in your pocket, chances are there's an ARM processor in it somewhere.

Its chips are also increasingly popular in non-mobile devices such as smart TVs, and are expected to feature heavily in the upcoming 'internet of things', which will web enable everything from cars to household appliances.

Who's the boss?

 

The first CEO was electronics engineer Robin Saxby, a garrulous technophile who steered the firm through the tricky formative years. Warren East, by contrast a self-confessed 'gadget Luddite', took over in 2001 and has seen ARM through to the commercial maturity it enjoys today.

On his watch, the share price has quadrupled to over a tenner, while operating margins have doubled to 36% in the past five years.

But the low-key East - who eschews the spotlight and unwinds by playing the organ in his local church hall - is retiring in July, to be replaced by the firm's current president, Simon Segars. Expect an 'if it ain't broke, don't fix it' approach from the new chief executive.

The secret formula?

 

Intellectual property. ARM is a perfect specimen of the kind of modern knowledge company that politicians and thinkers are always banging on about.

Only in ARM's case the hype is largely true. Despite the fact that 8.7 billion chips were shipped last year with ARM's name on them, it didn't make a single one.

Instead, it licenses its designs to manufacturers including Intel, Nvidia and Qualcomm, thus sidestepping all that pesky capital investment and freeing up staff to think big thoughts about designing the better, faster, cheaper processors that users from Apple and Samsung to HTC and Microsoft all want.

Don't mention...

 

Takeovers. ARM is the frequent subject of City rumours, and no wonder. It offers would-be purchasers the mouthwatering prospect of global leadership in a lucrative growth market, in a package whose market cap places it more nearly within the reach of both big corporates and large private equity players than just about any comparable rival firm.

New boss Segars has vowed to resist all bids - but still...

VITAL STATISTICS*

Employees: 2,300

Revenues: £576.9m

ARM chips sold: 8.7bn

Pre-tax profit: £221m

*All figs FY 2012

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