[Apple Shockwave](18) Courtship Toward 'Semiconductor Neutral Microstate' ARM... Intensifying Competition for Stake Acquisition

ARM, Negotiating Anchor Investment Ahead of IPO
Opportunity to Strengthen ARM Collaboration but Potential Competition Issues
Apple Investment Could Influence Expansion of ARM-Based PCs

Editor's Note[Apple Shockwave] is a content series that examines the upheaval caused by Apple entering the semiconductor market. You might wonder why Apple is involved in semiconductors. Apple is no longer just a company that makes smartphones and computers. After long efforts starting from its founder Steve Jobs, Apple has designed world-class semiconductors used in mobile devices. If Intel was the leader in the PC era, Apple has become the top predator in the mobile era semiconductor ecosystem. Amid the global semiconductor supply chain crisis and large-scale semiconductor production line investments, we will carefully examine the upheaval and prospects in the semiconductor market brought about by Apple Silicon to broaden our readers' insights. Apple Shockwave will visit readers every Saturday. After more than 40 installments, it will be published as a book.

"Will ARM Remain the Switzerland of the Semiconductor Industry?" (Tech Monitor)

The era of Apple Silicon has dawned, elevating the status of semiconductor design provider ARM even further. In the age of artificial intelligence (AI) semiconductors, ARM holds an even more important position. Examining the competition among the world's major semiconductor companies surrounding ARM is a crucial point to understand the future trends of the semiconductor market.

The competition to acquire ARM has reignited. News that ARM, which is preparing for a U.S. stock market listing, is seeking investments from semiconductor companies signals the start of fierce competition.

Japan's SoftBank made a bold move in 2016 by acquiring ARM for $32 billion. Chairman Masayoshi Son, who had stepped back, returned to management citing many tasks and orchestrated this massive deal. Just as Morris Chang, founder of TSMC, returned to the company during the 2008 financial crisis and invested heavily in R&D to secure competitiveness, Chairman Son made a bold 'bet' on the future of semiconductors transformed by ARM and the smartphone era. However, Son put ARM up for sale to recover from large investment losses. The chosen new owner, Nvidia, was blocked by competition authorities and failed to complete the acquisition.

Now, SoftBank and ARM are seeking solutions through a U.S. stock market listing. Recently, reports emerged that ARM is raising investment.

Many media outlets have focused on Intel being mentioned as an anchor investor before ARM's listing. Reports also suggest that if Intel, which has embarked on a foundry business beyond 2nm to 1.8nm together with ARM, secures shares in ARM, Samsung Electronics' foundry orders could become even more difficult.

Companies rumored to have received equity investment proposals from ARM include Intel, Google’s parent company Alphabet, Microsoft, TSMC, Samsung Electronics, and Apple. Considering that about ten companies are said to be negotiating, it is presumed that other unnamed companies are also considering acquiring ARM shares. Anchor investors do not acquire controlling stakes, but their significance is still considerable because it is ARM.

Let’s look at the profiles of companies potentially investing in ARM. Foundry businesses include TSMC, Intel, and Samsung Electronics. Intel and Samsung Electronics are integrated semiconductor companies that handle both design and manufacturing. Alphabet owns the Android operating system. Microsoft dominates PC operating systems and has recently expanded its business areas based on artificial intelligence. Both Microsoft and Google are also pursuing their own semiconductor designs.

However, becoming the owner of ARM is not easy. The crown of the semiconductor king has turned into a 'crown of thorns.' It is neither easy to embrace nor can one just watch from afar. A similar example is ASML, the extreme ultraviolet (EUV) lithography equipment maker, but ARM presents a different challenge. When ASML needed huge funds to develop EUV equipment, Samsung Electronics, Intel, and TSMC stepped in to support. Companies not pursuing sub-10nm ultra-fine processes had no need or reason to invest in ASML’s equipment. They had to invest for survival and simply receive the results.

Investment in ARM involves factors that limit competition. All smartphone makers in the Android camp as well as Apple Silicon rely on ARM-based system-on-chips (SoCs). Nvidia’s failed acquisition of ARM due to regulatory intervention has underscored the difficulty of acquiring ARM.

Therefore, anchor investment in ARM can be a profitable venture. Although it does not mean acquiring management rights, it allows long-term cooperation with ARM compared to competitors. Like ASML, if ARM’s stock price rises, investment returns will also be generated. There is no reason to refuse investment.

Rumors have surfaced about Samsung Electronics and SK Hynix pursuing ARM acquisition, but the most important factor is Apple’s movement. Previously, Apple Shockwave recalled that Apple was behind ARM’s birth. Apple, which was wandering without founder Steve Jobs, raised funds for a turnaround through the sale of ARM shares.

According to Apple specialist media 'Apple Must,' rumors circulated in Silicon Valley that Apple was advised to invest in ARM. Apple reportedly was negative about this investment proposal, considering that competitors like Qualcomm, which competes with Apple Silicon, would oppose it. Still, if competitors invest in ARM shares, Apple cannot just stand by. Apple has more than enough financial power. Apple’s participation would also increase the success of ARM’s listing.

Apple is placing emphasis on its connection with ARM, preparing to open a research facility next to ARM’s headquarters in Cambridge, UK. About 1,000 personnel are expected to work there, advancing Apple Silicon together with ARM. Apple expert Johnnie Evans predicted, "Apple and ARM will likely have various personnel exchanges."

A variable related to ARM acquisition is patent litigation. ARM may change its business structure to increase corporate value. ARM has already clashed with Qualcomm, which is expanding from smartphones into PCs and automotive sectors.

ARM has filed a lawsuit claiming that Qualcomm and Nuvia, acquired by Qualcomm, violated ARM’s license agreements. Qualcomm plans to produce PC SoCs based on ARM designs. ARM’s objection is that Nuvia cannot transfer licenses to Qualcomm without ARM’s consent.

ARM granted licenses to Nuvia, a startup founded by former Apple Silicon designers, but strongly opposed the transfer of those licenses to the large corporation Qualcomm.

If Apple gains influence over ARM, this issue becomes more complicated. PCs using Intel CPUs are transitioning to ARM-based PCs. Currently, Apple holds the lead in ARM-based PCs. If Qualcomm produces PC Snapdragon chips through Nuvia, it will become Apple’s strongest competitor. Qualcomm will undoubtedly focus on expanding ARM-based PCs with partners like Samsung Electronics and Microsoft. If Apple becomes a major shareholder of ARM and can interfere in management, conflicts of interest may arise that limit the rise of competitors.

Disputes with ARM could be fatal to fabless companies. If ARM’s claims are accepted, Qualcomm may have to revise license agreements and pay higher fees. This would directly increase development costs. Qualcomm’s Nuvia chip prices could rise or profitability could decline. This would be a factor in PC and smartphone price increases. Negative impacts on companies preparing ARM-based PC businesses to compete with Apple Silicon are inevitable. The opening of the ARM-based PC and server markets could also be delayed.

If ARM goes public, it may pursue strategies to expand profitability. The first thing to consider is raising prices for semiconductor design licenses. This could naturally lead to price increases for chips based on ARM designs.

If Intel succeeds in investing in ARM, a regional Anglo-American semiconductor ecosystem could be born. It could be a merger of the RISC and x86 camps, which have been like oil and water in the semiconductor ecosystem. Additionally, a vertical integration from design to foundry would be formed.

Pat Gelsinger, Intel CEO with x86 CPU development experience, is accelerating the foundry business for the revival of Intel and U.S. semiconductors. The core of the foundry business is ARM-based chips. If Apple entrusts Apple Silicon production to Intel, a perfect semiconductor alliance spanning the UK and the U.S. will be formed.

The situation would be different if TSMC invests in ARM. TSMC has maintained a management policy of not competing with its customers. If TSMC invests in ARM, this principle could conflict. Of course, if principles are maintained, there would be no problem. Considering that TSMC has built its current status through cooperation with ARM, collaboration between the two companies cannot be ruled out.

IT specialist media Tech Monitor’s attention to whether ARM will maintain its role as the 'Switzerland' of the semiconductor industry is well justified.