ARM resists calls to represent third-party IP

ARM (Cambridge, England) has made a limited number of engagements in the area of IP representation but Warren East, ARM’s chief executive officer, said the company is reluctant to take on more.

It is no surprise that small companies that have created a circuit block in the form of IP would want to partner with ARM. ARM has the ear of many major systems companies and most major semiconductor companies. Many of these smaller IP companies find it hard to get their prospective customers to answer the phone to them, let alone schedule a meeting.

In addition, ARM has a thoroughly shaken-down infrastructure for determining license payments and royalties and taking in the money. In ARM’s case the cost of this infrastructure has been amortized over many years and many deals, but for smaller, younger IP companies building such a network of employees and methods of working represents a major overhead.

However, it is relatively easy for ARM to say “no” to these would be IP licensors. It is harder for ARM to say the same thing to its own customers, but ARM is coming under pressure from them, East acknowledged. “There are customers who want to rationalize their supplier base. They want us to be a supplier of all their IP. But it is not necessarily economic for us to do so,” East said.

The three engagements that ARM has in the area of IP partnering and representation are: Imagination Technologies Group plc (Kings Langley, England), which is a supplier of graphics cores; Superscape Group plc (Hook, England), a developer of games software for mobile phones; and TransDimension Inc., a vendor of connectivity IP.

An additional option is for ARM to acquire vendors of IP rather than simply represent them or partner with them. The acquisition route has been used by ARM in the case of Artisan Components Inc. (see Dec. 24, 2005, story).

East said that ARM has tried to avoid acquiring companies whose IP is too application-specific and this was one reason why it made sense to partner with Imagination, Superscape and TransDimension, but to acquire Artisan, which makes highly generic physical IP at the gate I/O cell and memory array level.

Nonetheless ARM is under pressure from both the vendor and customer side to cut more representation deals and the rules of industry-scale capital efficiency would also dictate that, up to a point.

East said: “Over time I expect our portfolio will grow,” but he added that ARM has one strategy up its sleeve to prevent IP vendors using ARM’s relationship with its customers unnecessarily, which is to ask: “Are you going to pay us enough to make deal margin enhancing rather than margin dilutive?”

“It’s up to them to make it economic for us. We can’t do everything,” East said.