Arm to Change Pricing Model Ahead of IPO

[AleksandarK]

Softbank, the owner of Arm Ltd., is preparing everything it can to ensure a successful initial public offering (IPO) of Arm. However, ahead of the IPO, we have more information about Arm's plans to change its licensing and pricing structures to collect more royalties and ensure higher cash flow for future investors. Currently, Arm licenses technology in the form of intellectual property (IP), usually in different flavors of Cortex-A CPU cores that go inside processors for phones and laptops. Chipmakers that use the IP have additional expenses such as Arm ISA license fee and per-chip royalty, which is based on the chip's average selling price.

However, according to Financial Times, we have a new pricing structure that changes how Arm bills its partners and customers. From now on, Arm will grant licenses to chipmakers and ask them to only ship to device makers with an agreement with Arm. Additionally, these device makers now pay per-device royalty based on the device's average selling price (ASP). This ensures that Arm's fee applies to the higher margin product, which means that ultimately Arm will collect more cash flow from its customers and partners. Currently, the old model charges around 1-2 percents per chip in each smartphone, considering the ASP of smartphone chips to be $40 for Qualcomm, $17 for MediaTek, and $6 for Unisoc. However, taking the ASP of a mobile phone at $335, as recorded in 2022, the fee would be much higher. People familiar with the matter noted that Arm will apply this pricing structure as early as 2024. Apple and Samsung are not impacted by this change, as both companies enjoy their own agreements with Arm.



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[kondamin]

and now Samsung a5x class of phones will cost $500 mid range ones jump to 1000 and high end models with basic space go to 2000.

quallcomm will move to riskV but prices will never go down again.

 

[unwind-protect]

... and the shoe drops. To be expected.

Giving a push to RISC-V, how nice of them.

 

[Denver]

This model should be illegal, how are you going to charge a license fee based on the value of something you didn't produce? Has ARM become the government?

 

[R0H1T]

You do know there are ad valorem taxes right?

 

[kondamin]

This model should be illegal, how are you going to charge a license fee based on the value of something you didn't produce? Has ARM become the government?

It's qualcomms model for their modems

 

[bug]

Change something as fundamental as licensing shortly before IPO. Because investors just love this kind of uncertainty, don't they?

 

[Nostras]

It's qualcomms model for their modems

For modems you can just choose a different manufacturer. Finding a proper alternative for ARM is much much more difficult.

 

[trsttte]

For modems you can just choose a different manufacturer. Finding a proper alternative for ARM is much much more difficult.

There just isn't one, Risc V is still in it's infancy and MIPS is dead

I don't see this being very tennable, I think the Qualcomm modem example is different because Qualcomm "produces" and sells that modem directly, ARM is not selling anything. ARM would need to become a chip maker and deal with device manufacturers. This also focuses on high margin consumer products but ARM is in everything, how will they get the percentage of a washing machine where the chip with ARM IP was sold and resold multiple time?

 

[Fourstaff]

For modems you can just choose a different manufacturer. Finding a proper alternative for ARM is much much more difficult.

Today, yes. In 10 years time, who knows. x86 was the volume king of the hill for decades until ARM dethroned them. RISC V might just take over. How the transition is going to pan out may be up in the air but Apple did POWER -> x86 -> ARM for their laptops so its possible.

 

[R0H1T]

ARM dethroned x86 in terms of chips shipped probably a decade back or somewhere close to that & while you could argue x86 was king of the hill for quite a long time it's rise to fame wasn't probably until after the IBM PC. So probably 3 decades or so? Now what could propel RISC-V & that answer is pretty simple ~ economics! Unless big players fund the development & back it like they did with the other two it won't be a viable competitor ever, that or China & the jury's out on the latter.

 

[The_Enigma]

So if the Qualcomm chip price for a snapdragon is $40 according to the article, that would be either $0.04 or $0.08 depending on the 1-2% royalty free. Now a typical $900 "flagship phone" cost means the royalty suddenly is going to go to $9 or $18. That is a massive increase, and I really think people like Qualcomm are going to do some serious pushback over it. How would Qual possibly pay roughly 25% of their products selling point over to ARM now?

 

[trsttte]

How would Qual possibly pay roughly 25% of their products selling point over to ARM now?

Well that's easy, by charging at least 25% more for their SoC. I think the bigger problem is how will this possibly work when Qualcomm is not setting the price of the phone, how do they pay royalties on an hypothetical price? And will now ARM control who Qualcomm can sell to with the "only deal with companies who partnered with ARM"?

And what about the entire rest of the industry that's not smartphones/"smart" devices?