Recently, the increase in the licensing fee of the Arm architecture has attracted widespread attention in the industry. According to multiple sources, Arm plans to significantly increase the licensing fee for its chip architecture in the future, which is expected to increase by 300%. The news has sparked a ripple effect in the semiconductor industry, especially for some companies that rely on Arm architecture, which will be a significant challenge to their cost structure. So, which companies will be most affected by Arm's skyrocketing licensing fees? China Exportsemi will deeply analyze the possible market impact of this change from different dimensions.
Background to the rise in Arm licensing fees
The Arm architecture has long dominated many fields such as smartphones, embedded systems, Internet of Things, and automotive. Arm has become a core model for profitability by licensing its technology to major semiconductor companies, charging licensing fees and sales-based royalties. However, with the sale of Arm's parent company by Japan's SoftBank and plans to go public in the United States, Arm's business model is also facing new adjustments. In the process of promoting Arm's transformation into a public company, SoftBank hopes to increase its revenue and further increase the company's valuation by increasing licensing fees.
It is understood that Arm's licensing fees will rise sharply in the next few years, and the licensing fees of some designers will increase by as much as 300%. This move, although it can bring considerable short-term revenue to Arm, may also change its position in the semiconductor industry chain, especially in the competitive landscape of the global semiconductor market.
Figure: ARM licensing fees up 300%
Which companies hurt the most?
China Exportsemi divides the most affected companies into the following three categories:
Smartphone manufacturers (e.g. Qualcomm, Samsung, Apple)
1. Qualcomm: Qualcomm has been one of the largest users of the Arm architecture, especially in its Snapdragon family of mobile processors. As the world's leading mobile chip design company, Qualcomm relies on the Arm architecture to develop almost all high-end and mid-range mobile phone chips. The increase in licensing fees means that Qualcomm will face higher R&D and production costs, which is undoubtedly a huge pressure on Qualcomm, which is already tight on profits. In particular, Qualcomm may need to increase its selling price to make up for the rising cost in the market competition with competitors such as Apple and Samsung, which in turn will affect its market share and profit margins.
2. Samsung: Samsung also uses the Arm architecture extensively in its Exynos series of chips, and the rising licensing fees will increase the burden of its chip development. Although Samsung is the world's leading chip manufacturer, it relies on Arm for as much technical depth as other companies when it comes to chip design. Therefore, the increase in Arm's licensing fee will have a significant impact on Samsung's chip business.
3. Apple: Although Apple has begun to develop its own M-series chips in recent years, getting rid of its dependence on traditional Intel architecture, some of its chips are still based on Arm architecture. Although Apple is relatively profitable in the overall business, the rising cost of chip design will still put some pressure on it.
Chinese semiconductor companies (e.g. Huawei HiSilicon, UNISOC
1. Huawei HiSilicon: Huawei HiSilicon has long relied on the Arm architecture, especially in its Kirin series chips. With Arm's licensing fees skyrocketing, Huawei HiSilicon will face greater cost pressure, especially with its large chip production volume. Although Huawei has certain independent R&D capabilities, it still requires a lot of technical investment and time to completely get rid of its dependence on the Arm architecture.
2. UNISOC: As another major chip design company in China, UNISOC also relies on the Arm architecture in the field of mobile communications. The increase in licensing fees will undoubtedly increase UNISOC's operating costs and affect its competitiveness in domestic and foreign markets, especially when the Chinese market and overseas markets compete at the same time.
Startups and small and medium-sized chip design companies
Startups and SMEs: For many startups and small and medium-sized chip design companies that rely on Arm architecture, the skyrocketing licensing fees will undoubtedly pose a huge burden. Many chip startups rely on the Arm architecture to quickly develop new products, which can reduce their own R&D investment. The increase in Arm licensing fees may force these companies to reduce R&D investment or increase product prices, which in turn will affect their market share and product competitiveness. As a result, many startups may have to look for alternatives, such as moving to RISC-V architectures.
Internet giants (e.g. Amazon, Google, Microsoft)
Cloud computing companies such as Amazon AWS, Google Cloud, and Microsoft Azure are also making extensive use of Arm-based server processors. While these companies can obtain relatively favorable licensing fees through large-scale procurement, as licensing fees rise, the operating and maintenance costs of cloud computing companies will rise significantly. In particular, in the process of expanding and optimizing cloud computing infrastructure, servers that rely more on Arm architecture may face higher cost pressures, which may force these companies to increase service fees, thus affecting the overall market competitiveness.
Why is Arm going up in price?
The editor of China Overseas Semiconductor Network believes that the main reasons for Arm's price increase may be the following aspects:
Drive listing valuations
Arm plans to boost the company's revenue through price increases, which will help it boost its valuation before going public. Since SoftBank's acquisition of Arm, SoftBank has been looking to increase its capital value by finding a stronger profit model for Arm. Therefore, the price increase is to quickly improve Arm's profitability and meet the expectations of investors and capital markets.
Drive R&D and innovation
Another reason is that Arm wants to further drive its technology research and development by increasing revenue and maintain its leadership position in the global semiconductor industry. As one of the world's most important chip architecture companies, Arm needs to continuously invest resources in technological innovation, especially in emerging fields such as AI, 5G and autonomous driving.
Global demand for chips has surged
As the global demand for chips continues to grow, Arm is facing greater technical and market pressure. To address these issues, Arm may believe that by raising prices, it can generate more revenue to expand its R&D and technology ecosystem.
Summary: The potential impact of Arm's price increase
The skyrocketing cost of Arm licensing will have a profound impact on multiple industries, especially for companies that have relied on Arm architecture for a long time, and the price increase will undoubtedly bring greater cost pressure. In this case, companies need to assess the impact of rising costs and consider alternatives, such as moving to open-source architectures such as RISC-V. The editor of China Exportsemi believes that RISC-V may further improve its development and expansion speed due to the price increase of Arm, and enter a new level in 2025.
However, this change may also accelerate the transformation and competition of the industry. Some companies may increase investment in the research and development of independent chips, seeking to get rid of their dependence on Arm; Some SMEs and startups may move to more open and low-cost architectures to reduce the risk of licensing fees. Overall, Arm's price hike policy may bring more revenue in the short term, but it may also pose a long-term challenge to its market share.
