SoftBank Group founder Masayoshi Son has reportedly raised the price for corporate customers of his chip design company ARM to purchase chip design solutions. The move is aimed at boosting ARM's revenue but may hurt the company in the long run, as some of its biggest customers may seek alternatives due to the increased licensing fees.
ARM has many chip manufacturer customers around the world, including giants such as Qualcomm, who license low-power processor designs provided by ARM. These customers may not be able to accept the increased licensing fee. If they decide to develop their own design solutions, ARM may lose some of its biggest customers.
ARM's business model was initially to charge enterprise customers a small licensing fee, equivalent to about 2 percent of the final processor price, for using the processor design. However, the company is now considering charging licensing fees according to the final price of the electronic device using the processor. This move is aimed at increasing ARM's licensing fee income significantly.
ARM's design has become the standard for mobile device processors around the world, and it is used in nearly every smartphone. The company's processors are extremely energy-efficient, use less battery power, and generate less heat. The cost is also very affordable for the processor end-manufacturer.
The market has changed, and many electronic devices already use RISC-V processors based on open-source chip design architecture. Under this situation, if ARM raises the license fee standard, the market dominance will allow the company's revenue to increase substantially. But conversely, raising prices for deep-pocketed smartphone makers could hurt ARM itself. If the license fee is too high, these manufacturers may abandon ARM and invest in other alternative processor designs.
SoftBank Group has high hopes for the listing of ARM. Last year, it was reported that Softbank Group hoped to list ARM at a valuation of US$60 billion, but the global semiconductor industry has entered a downturn. According to the average price-earnings ratio of listed companies in the semiconductor industry, ARM’s valuation may be less than 34 billion dollar.
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