To Maintain Market Cap, Sales Scale Must Grow
Arm Management Focuses on Short-Term Profit Realization
Cracks Emerge with Major Client Qualcomm
British semiconductor company Arm, which successfully debuted on the US Nasdaq, is expected to adopt an aggressive price increase strategy going forward. Arm currently holds nearly 100% market share in the smartphone chip market. If chip design costs rise overall, smartphone prices may also be affected.
On the 14th (local time), Arm went public (IPO) on the Nasdaq market. The stock price surged more than 10% above the offering price ($51) immediately after the market opened, and eventually closed at $63.59 (about 84,500 KRW), up 24.69%. Its market capitalization approaches $65 billion (about 86 trillion KRW).
Arm's revenue last year was $2.7 billion (about 3.59 trillion KRW), with an operating profit of $600 million (about 800 billion KRW). The average annual growth rate over the past 10 years was 12%. Although it is a stable business, it is questionable whether the scale justifies a market cap worth tens of trillions of won.
Regarding this, the US semiconductor market analysis group Semianalysis predicted that Arm's business model may face a 'radical' change.
Currently, Arm's main business is providing basic design technology to other semiconductor design companies and receiving royalties or license fees. Thanks to this, it has been able to focus on technology development (R&D) without directly competing with other giants such as Qualcomm, Apple, and MediaTek, but its growth rate has been relatively slow.
However, Semianalysis emphasizes that Arm may significantly increase prices and directly compete with other fabless semiconductor companies in the future.
Arm has already recently unveiled businesses such as contract design services that design central processing units (CPUs) for other companies and chiplet (technology connecting chips) businesses. Although Arm does not design chips under its own brand, it may indirectly compete with companies that have used Arm's technology.
Semianalysis also noted that before this IPO, Arm's management mentioned that they would achieve a 20% range revenue growth. To rapidly increase revenue in a short period, price hikes are the most certain method.
If Arm gradually raises design technology prices, is there a possibility that customers will resist? Semianalysis said, "Arm holds 100% market share in smartphone semiconductors," adding, "There is virtually no alternative, and (price increases) will be a bull case for Arm."
Almost all smartphones worldwide are equipped with some form of Arm's design technology. [Image source=Qualcomm]
Arm's price increases are likely to gradually affect various chips installed in smartphones. Ultimately, the price of mobile phones purchased by consumers may also become more expensive.
Meanwhile, this is not the first time Arm has attempted a 'price increase drive.' In March, the UK’s Financial Times (FT) also reported that Arm was about to adjust royalty prices soon.
Cracks are also growing in the close alliance with customers. In August last year, Arm filed a license infringement lawsuit against longtime partner Qualcomm and its subsidiary Nuvia. Qualcomm has countersued, claiming Arm filed an unfair lawsuit.
Semianalysis pointed out, "Arm thinks its market position is similar to Qualcomm's, and this is why Arm has started adopting pricing strategies like Qualcomm's," adding, "Ironically, Qualcomm is one of the most conspicuous customers opposing Arm's new pricing strategy."
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