ARM Stalks Servers

v8, ARM’s 64-bit processor, looks like a hit. Seven licences were signed in Q2, making 50 in all. “50 v8 licences signed – 100 to go,” says ARM evp Pete Hutton.ARM’s business works on the principle that a dollop of jam today delivers another dollop of jam in two to three years’ time when today’s licence deals will have translated into chips being sold in the market earning royalties.

The revenue ARM gets from selling licences is pretty much the same as it gets from royalties.

However the v8 licences seem set to deliver royalties quite quickly. Three chip-makers have announced 64-bit chips to go into the server and networking markets.

The Big Beast is the 48 core v8 64-bit 2.5GHz Cavium processor called ThunderX. “ThunderX will enable Cavium to be the first ARM-based vendor to deliver the performance and features required by today’s volume server market at half the power and significantly lower cost compared to competing solutions,” says processor guru Linley Gwennap.

As well as ThunderX, there’s Applied Micro’s eight v8 core X-Gene processor and AMD’s eight v8 core Seattle processor. The Cavium, AMD and Applied Micro v8-based processors are all due for sampling in Q4.

Hutton sees the server market as a 50 million unit a year opportunity and ARM aspires to a 5-10% market share by 2017. This year it expects a ‘single digit percentage’ share. ARM has taken a a softly softly, multi-year approach to the server market. Six years ago ARM predicted that 2014 would be the first year it would see revenues from server chips.

Getting SOCs with ARM cores to yield well in production is the main job of ARM’s physical IP division whose licenses were up 41%.

Here ARM seems to be well up with the game. “We’re providing physical IP on 16nm, starting advanced product development on 10nm, and 7nm is in R&D,” says Hutton.

Physical IP is not a big business for ARM – it brought in about $35 million in Q2 revenues – but it’s a key implementer for ARM-based SOCs and all the major foundries take it. More than 100 licences have now been sold for ARM physical IP.

Like all tech companies nowadays, ARM mentions IOT quite a lot. Asked if ARM does anything to its product line specifically to address IOT, Hutton replies: “Our product line is designed for IOT – wearables use IP from ARM – these devices are based on our strengths.”

The outward and visible sign of that strength is a booming demand for ARM microcontroller core licences – which now number 240. 20 out of Q2’s 41 new processor licences were for the microcontroller core Cortex-M.

The truth of the matter seems to be that ARM doesn’t actually do anything to its existing product line to make it more suitable for IOT applications – it’s just that ARM’s existing product line spans the range of what IOT uses.

ARM is becoming a bit of a cash machine these days, throwing up nearly £87 million in cash in Q2 which it has added to its £746 million cash hoard – up from £706 million at the end of last year.

A slightly sinister note in the Q2 accounts says that ‘following a review of the skills and capabilities of groups across the business’ 130 people left the company. This cost £8.4 million. Despite this ARM’s overall head count has grown by 211 this year to 3,044 people. 1,258 are in the UK, 723 in America, 401 in Europe, 421 in India and 241 in Asia-Pac.

ARM is looking for a better H2 than H1 because of ‘an improving market environment in the second half ‘.
Asked what ARM knows about the market that the rest of us don’t, Hutton replies: “We get a lot of information from our partners which we can’t share,” adding: “TSMC publishes its wafer shipments every month.” In fact reports out of Taiwan say that TSMC is so over-booked that customers are offering to pay a 5% premium to get their wafers.

All of which goes to explain why ARM anticipates ‘an acceleration in royalty revenue growth in H2’.