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ARM de­signs chips for the vast ma­jor­ity of the world’s smart­phones

When the news broke in July that UK pro­ces­sor de­signer ARM had been taken over by Ja­panese firm SoftBank for the princely sum of £24bn (yes, bil­lion), a lot of

peo­ple were left feel­ing con­fused. For many, it was the first they had heard of ARM, and it left a lot of per­ti­nent ques­tions to be an­swered. Why was this un­fa­mil­iar Bri­tish com­pany be­ing bought by an equally un­fa­mil­iar Ja­panese com­pany, and why was it worth such an as­tro­nom­i­cal sum?

One rea­son is ARM’s reach (so to speak). It de­signs chips for the vast ma­jor­ity of the world’s smart­phones, in­clud­ing ev­ery iPhone ever made. That kind of near-uni­ver­sal mar­ket pen­e­tra­tion is un­doubt­edly valu­able to any po­ten­tial buyer. But does this takeover mean changes are com­ing to the iPhone and its A-se­ries pro­ces­sors?

SoftBank is no stranger to huge takeover bids. In 2013 it paid $20.1bn for a con­trol­ling stake in US telecom­mu­ni­ca­tions firm Sprint. It also runs the Ja­panese op­er­a­tions of UK phone net­work Voda­fone. It took over French ro­bot­ics com­pany Alde­baran and made it into a global name, and has sim­i­larly an­nounced that it plans to ex­pand ARM and dou­ble the num­ber of staff work­ing at its UK op­er­a­tions over the next five years (in fact, Masayoshi Son, CEO of SoftBank, pledged to make that a legally binding com­mit­ment that would be en­force­able by the UK gov­ern­ment’s busi­ness takeover panel).

The In­ter­net of Things

The main rea­son for the takeover lies in the In­ter­net of Things (IoT), a sys­tem whereby ev­ery ap­pli­ance and gad­get is con­nected and can share in­for­ma­tion (so you can con­trol your light­ing with your iPhone, for ex­am­ple). A fu­ture where ev­ery do­mes­tic ap­pli­ance is smart, con­nected and pow­ered by an ARM chip is one that SoftBank has staked so much money on; with its cur­rent global pres­ence in smart­phones, the think­ing is that ARM will be well placed to in­te­grate it­self into the IoT. In fact, it’s ARM’s low-power chips – so es­sen­tial in smart­phones – that make it such a good fit for the IoT, where small, af­ford­able, en­ergy-ef­fi­cient chips are vi­tal. Not ev­ery­one is as con­fi­dent as SoftBank. Ac­cord­ing to Marc Ein­stein of busi­ness con­sult­ing firm Frost & Sul­li­van, “SoftBank’s ac­qui­si­tion is a huge bet on the fu­ture”. SoftBank be­lieves that ar­ti­fi­cial in­tel­li­gence will play a mas­sive role in the com­ing years, and wants to be in pole po­si­tion when that fu­ture be­comes the present. Son has even gone so far as to call what he sees as the IoT fu­ture “the big­gest par­a­digm shift in hu­man his­tory”. He’s not ex­actly hes­i­tant, that’s for sure.

And he’s not alone. Com­men­ta­tors have been call­ing on Ap­ple to en­ter the In­ter­net of Things mar­ket­place for some time now, ei­ther with a smart home app or, some­what more am­bi­tiously, a con­nected hub de­vice.

Do­ing so makes sense for Ap­ple, as the smart­phone mar­ket has been slow­ing down and even the iPhone – once such a guar­an­teed grower – has not been able to es­cape the down­turn. These con­di­tions af­fect ARM as much as they do Ap­ple, and with SoftBank’s pro­fessed in­ter­est in the IoT so ob­vi­ous, it’s al­most a cer­tainty that ARM will look to ex­pand in this di­rec­tion. So too, surely, must Ap­ple, if it wants to find a new, prof­itable rev­enue stream – some­thing it’s so good at.

What now for Ap­ple?

BGC Part­ners an­a­lyst Colin Gillis sees the SoftBank takeover as a missed op­por­tu­nity for Ap­ple. “Ap­ple ac­quir­ing ARM could make so much sense”, he opined at the time of the takeover an­nounce­ment. “It’s a high-mar­gin busi­ness with fu­ture growth… It po­si­tions Ap­ple for the grow­ing IoT mar­ket”.

Still, all is not lost for those hop­ing Ap­ple will en­ter the world of IoT. Tim Cook will not sud­denly switch to a dif­fer­ent chip de­signer now that ARM is owned by SoftBank, and he’s equally un­likely to be turn­ing a blind eye to ARM’s IoT in­ten­tions. Pa­trick Moor­head, an an­a­lyst at Moor In­sights and Se­cu­rity, summed it up this way: “I’m not ex­pect­ing any changes be­cause many of their con­tracts are long-term, tied to spe­cific ar­chi­tec­tures and prod­ucts”. Any IoT plans Ap­ple may have been har­bour­ing will not have been jet­ti­soned be­cause Ap­ple failed to buy ARM, nor will it sud­denly switch to a ri­val chip de­signer.

Af­ter all, Son likes Ap­ple. He pitched an iPhone con­cept to Steve Jobs two years be­fore it came out, and se­cured ex­clu­sive rights to sell the iPhone in Japan. He is re­port­edly still close to Ap­ple ex­ec­u­tives. Ac­cord­ing to tech in­dus­try con­sul­tant Tim Ba­jarin, this close re­la­tion­ship may grant Ap­ple “early ac­cess to new tech from ARM or any other pref­er­en­tial treat­ment” – a po­ten­tially sig­nif­i­cant ben­e­fit. With that in mind, the close­ness be­tween Ap­ple and ARM is likely to con­tinue. The two col­lab­o­rated on the Ap­ple New­ton, and ARM de­signed the Se­cure En­clave that’s es­sen­tial to Touch ID – the part­ner­ship is un­likely to sim­ply end there.

What does that mean for the iPhone and its ARM-de­signed chip? Well, just a week be­fore the SoftBank bid, ARM an­nounced it was col­lab­o­rat­ing with na­no­elec­tron­ics re­search group IMEC on a 7nm chip de­sign. As per pre­vi­ous sim­i­lar im­prove­ments, this would likely re­sult in a speed­ier and more ef­fi­cient chip, and thus a speed­ier and more ef­fi­cient iPhone in the fu­ture.

What­ever the re­al­ity, there are bound to be some se­ri­ous ram­i­fi­ca­tions for Ap­ple in the fu­ture. Whether they man­i­fest them­selves sooner rather than later is not yet cer­tain, but we know they’re com­ing. Watch this space.

This may grant Ap­ple “early ac­cess to new tech from ARM”

ARM sees its fu­ture in smart home de­vices – Ap­ple may fol­low suit.

ARM has grown from a small joint ven­ture in­volv­ing Acorn Com­put­ers and Ap­ple to an in­dus­try gi­ant.

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