From Quartz:
Cambridge, England-based ARM Holdings just released its annual report, and two facts stand out: The first is that the company is on track for explosive growth. The second is that most of ARM’s future revenue, all of which comes from royalties, will almost certainly derive from licensing deals the company has already locked in.
ARM does one thing exceptionally well: Design the innards of the microchips that appear in almost every smartphone or tablet you’ve ever laid hands on. Their licensees, who take ARM’s reference designs and modify them for their own needs, include Apple, Samsung, Qualcomm and countless other manufacturers of fast but power-sipping microchips. But it’s not just mobile devices—ARM chips also show up in the boxes that pipe content onto our TVs, the infrastructure that enables our internet connections, and even an increasing share of the servers in data centers with which we communicate every time we open a web browser or stream a movie.
It’s worth noting that ARM remains a shockingly small company, given its influence. Its value on the stock market is only $20 billion (ailing PC maker Dell just went private for $24 billion). Its fourth quarter revenue was up 19.2% from the same period last year, but was merely $164.2 million. Compared to giants like Samsung and Apple or even mid-sized technology companies like HP and Dell, ARM is small fry, indeed.
And yet more than 90% of its income came from licenses it signed with manufacturers before 2008, according to its annual report. Of its approximately 960 licensees (some, like Apple, the company does not publicly acknowledge) 410 signed with ARM since 2009. It’s not clear that those licensees will sell as many chips as the first 550. But if they did, ARM’s revenue could be expected to increase proportionally in the coming years.
Most of ARM’s revenue comes from older licenses, and if new licensees do well, the company’s revenue could grow rapidly.ARM
Aside from global explosion of sales in smartphones and tablets, ARM’s projected growth comes from the sheer ubiquity of processors made by its licensees. As our world becomes ever more computerized, ARM is becoming a de facto standard. It’s not an exaggeration to say that ARM chips are in everything from your smartphone to your washing machine, and that future gadgets will in some sense be uniquely enabled by the combination of power, small size and low electricity use that is the trademark of ARM’s designs....MORE
