Beijing, March 23 (Xinhua) British chip design giant ARM, owned by Softbank Corp. Group, is seeking to raise the price of its chip design, and the company hopes to boost revenue ahead of this year's much-anticipated New York initial public offering (IPO), according to people familiar with the matter. At present, more than 95% of smartphones use ARM chip architecture.
Several industry executives and former employees said ARM had recently notified several big customers that the company would revolutionize its business model. ARM plans to stop charging chipmakers royalties for using its designs based on the value of chips and instead charge chipmakers based on the value of the equipment. That means the company earns several times more for each chip design it sells, because the average price of a smartphone is much more expensive than a chip.
The change is one of the biggest changes ARM has made to its business strategy in decades. Currently, Softbank Corp. CEO Masayoshi son (Masayoshi Son) is seeking to improve ARM's profits and attract investors as ARM is about to go public.
"it's the equivalent of ARM finding customers and saying,'We want to be paid more for basically the same things'," said one former senior employee who left ARM last year. "what Softbank Corp. is doing is testing the market value of ARM's monopoly."
Customers don't want to accept it.
Softbank Corp. aims to bring about a major change in ARM pricing as soon as next year, but so far the company has been frustrated by customers' reluctance to accept the new arrangement. Softbank Corp. bought ARM for £24.3 billion in 2016 and plans to retain a majority stake after ARM IPO.
Under the new business model proposed by ARM, royalties will be set based on the average selling price of mobile devices, rather than the average selling price of chips. These changes will mainly involve ARM's most famous "Cortex-A" design, which is crucial to the development of smartphone processors. Charging according to equipment price is a common practice in the telecom equipment market, and Qualcomm, Nokia and Ericsson have all adopted similar models for their patents. The problem with ARM, however, is that it established a different sales model a long time ago and is now trying to change its pricing strategy.
The average price of a Qualcomm smartphone computing chip is about $40, MediaTek $17 and Ziguang $6. Sravan Kundojjala, an analyst at TechInsights, says ARM charges royalties of about 1-2 per cent for each chip sold based on its design. By comparison, the average price of a smartphone in 2022 was $335. While ARM is unlikely to seek royalties of up to 1-2 per cent based on the value of each device, people familiar with the matter said it would set new pricing in a way that significantly increased overall profits.
So far, a smartphone maker that leads the Chinese market has rejected ARM's plans to raise prices, saying: "the proposed royalties will be at least several times higher than what ARM currently receives. We are told that they want these changes to be implemented from 2024. "
Some ARM customers, such as Apple, are both chipmakers and device manufacturers, and have signed special license and royalty agreements with ARM. Executives familiar with Apple's recent discussions said the company was not involved in discussions about changing ARM's business model.
ARM, Softbank Corp., Qualcomm, MediaTek, Ziguang Zhanrui, Xiaomi and OPPO declined to comment.
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