At ARM's length

The biggest mobile phone chip designer successfully keeps competition at bay while venturing into new segments

The demand for chipsets and microprocessors in the mobility space – mobile phones, navigation devices, iPods, music players and cameras – is virtually exploding. No wonder that chip manufacturer Intel has been trying to garner a pie of this growing market, which so far has been dominated by UK-based ARM.

With a revenue of close to $490 million and a market cap of about $6 billion, ARM is no match to Intel because of the latter's sheer size. But the company (ARM), which is an undisputed leader in the mobile phone market has been giving Intel a run for its money.

Hence, it did not come as a surprise when Intel announced its intention to acquire the wireless communication unit of Infineon Technologies. Infineon’s wireless unit makes chips for smart phones such as Apple’s iPhone. Its earlier acquisition of security firm McAfee was also geared to tap the mobile users, as handsets are increasingly being targeted by hackers. Earlier attempts made by the chip-manufacturer to enter the mobile space have not done well.

The reasons for this shift is quite evident. ARM ships almost four billion chipsets every year. Of this, two-third odd chipsets are used in mobile phones. Arm's chip designs dominate the mobile phone market, with nine out of every 10 handsets using them. Its microprocessor units are used in devices such as Amazon Kindle, iPhone, Dell Notebook and Google Nexus One among others.

The vastness of the size of the market that ARM caters to has made Intel, which used to be one of its customers, one of its biggest competitors. California-based Intel very well knows that the size of the PC market which is about 400 million chipsets (shipped every year) is in no way comparable with the four billion chipsets rolled out every year using ARM's design architecture.

With Intel entering the smartphone processor market, ARM is certainly feeling the heat, but not so much so that the company will not be able to keep it at an ‘arm's length’. Tudor Brown, co-founder and president of chip designer ARM Holdings, who was in India recently told Business Standard that even Intel's latest version of Atom processor meant to address the mobility space consumes at least 10 times more power than ARM's processors.

“This is the beauty and funny side of our business model. Intel has licences for ARM technology for modems, wi-max and a lot of other things, but for their main application processor (X86) we are fighting with Intel. A part of Intel is publicly fighting with us and parts of Intel are using ARM's technology,” said Brown.

ARM’s second quarter numbers beat market expectations, with an increase in the use of chips in car engines, washing machines and office equipment. Smartphone makers need one chipset each for applications like music player, camera, bluetooth, wi-fi and radio. While a basic phone has at least two chipsets, it can go up to 5-6 in high-end smartphones and the market is growing steadily.

“Similarly, sectors like automotive, medical electronics and aerospace use larger number of microprocessors even though the volume is not that high as mobile phones. A high-end BMW, for example, typically uses at least 100 microprocessors for virtually every application starting from the breaking system, radio, navigation and dashboard,” said Brown.

For ARM the action is very much in India, where the growth in mobile devices is clearly ahead of the global markets. Brown says India is significant for the company primarily for two things — it not only houses the third largest design (R&D) centre of the company, it is also a great place to get business locally by working closely with its customers like Texas Instruments, Nvidia, Qualcomm and Freescale — some of the leading semiconductor companies in the world.

The Bangalore design centre that came through an acquisition in December 2004 has since grown from 50 people to 300. The company plans to keep the headcount to 400. Globally the firm employs 2,000 staff.

“India is an interesting country for us in many sense because there are not many Indian companies who we can license technology but there are a lot of MNCs who are operating here that we can have a direct relationship with and provide local level support,” he added. His recent trip to India was for an induction programme for new hires.

“We have to be careful where we spent time and I am spending time here this week because we think it's more important to help these 50 people who joined ARM in the last 6-9 months to understand some of the culture of ARM — what really matters to us. I think it's very important,” said Brown, who has seen the company growing from strength to strength to being considered as one of the most valued companies in recent times.