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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.