Under the instruction of Masayoshi Son, Arm is expanding rapidly around the world!

Source: The content is translated from Bloomberg by the public account Semiconductor Industry Observation (ID: icbank), thank you.

ARM Holdings Plc is expanding at such a pace that co-founder Mike Muller has to make an appointment to use his own office.

“This has become a meeting room, so when I’m here I have to book because we’ve run out of space,” the company’s chief technology officer said in an interview at ARM’s headquarters in Cambridge, England.

“My office has become a conference room, so when I want to show up here I have to book it because we’ve run out of space,” the company’s chief technology officer, Mike Muller, said in an interview at ARM’s headquarters in Cambridge, England.

At the urging of Japan’s SoftBank Group Corp., which bought the company in 2016, ARM has added about 2,000 employees, bringing its headcount to just 6,000. That has left its existing offices stretched thin, with employees spread across six low-slung buildings.

The exterior of the new building of ARM Cambridge headquarters

ARM will soon move into a new £48 million ($61 million) building on its Cambridge campus, with a 180-meter-long atrium and more than 1,000 kilometers of Ethernet cabling. Although construction began before SoftBank acquired it, it’s a headquarters befitting ARM’s new ambitions.

“It’s quietly under the radar,” Mueller said with typical British sarcasm, before adding, “It’s good and it’s important.”

ARM's costs soar, profits plummet

Founded in 1990, ARM quietly grew into the UK's largest listed company before SoftBank bought it for $32 billion. The chips it designs are licensed to the world's largest technology companies. Almost all smartphones, phones and tablets run on ARM chips.

Now, the British executives who manage ARM have to step closer to the spotlight because of the high expectations placed on the company under the leadership of SoftBank CEO Masayoshi Son. According to Bloomberg, Son put pressure on ARM executives in meetings to quickly understand the details of current operations and the company's long-term plans. At his request, ARM updates its 10-year business plan every month to make it more focused on the future.

ARM CEO Simon Segars said that means his job is to invest "crazily" as the company tries to break into the high-end computing market and become the core of self-driving car technology. But Son also pointed out that these efforts must start to pay off before the company goes public again in the next five years. (Original text: Such efforts will have to start to pay off before spending is scaled back to prepare the company to go public again in about five years, as Son has indicated.)

ARM's new owner also brings a different audience. After Segars recently showed Son a Lenovo laptop using an ARM chip, Son asked him to demonstrate it to Microsoft founder Bill Gates at a meeting later that day.

Although Segars and his team are intoxicated by the vision of technology, they are still concerned about investment growth and subsequent profitability, but the current situation is taking them out of their comfort zone. ARM's technology is prevalent in the semiconductor field, but Sun hopes that ARM will shift to software and services.

According to Segars, when Sun first started acquisition talks with ARM, he was fascinated by the "science project." One of the reasons Sun bought ARM was that he believed that Arm, which has a dominant position in smartphone chip manufacturing, could achieve similar influence in the Internet of Things chip market.

But unlike what Son and many other futurists had hoped, that interconnected future doesn’t seem to be coming anytime soon. One reason is that all these connected devices are a huge hassle to manage, and they have to be made secure, have their software updated and stay connected at all times. But doing so is technically complex and can be expensive.

Another problem is that ARM does not have much expertise in IoT services.

So now, with the encouragement of Masayoshi Son, ARM has begun to expand its IoT services division. In August 2018, the company spent $600 million to acquire Treasure Data Inc., a US data analysis startup, which was their largest deal in the past 14 years. Earlier, they acquired Stream Technologies, a Glasgow-based company dedicated to improving the connectivity of IoT devices.

“In 10 to 15 years, the Internet of Things will be a world that will probably have a trillion connected devices, and that means even if they’re only a few cents per device per month, it still adds up to a lot of money,” said Chris Lane, an analyst at Sanford C. Bernstein. “It’s early days. But it’s definitely a good direction.”

Eventually, Segars may find himself having to cut back and explain to public market investors why his company is worth more than what SoftBank paid for it. According to Segars, SoftBank plans to take ARM public again within the next five years.

But ARM's window of opportunity may end sooner than this.

The idea behind SoftBank’s Vision Fund, which came at a time when technology was extraordinarily hot, was that the chip industry’s rebound was sustainable, and ARM itself was encouraged as new industries lined up to add electronics and intelligence to their products and operations.

But by the end of 2018, big tech and chip companies were out of favor. Concerns about trade wars, slower-than-expected development of new markets like self-driving cars and the return of old problems like excess inventory have begun to affect the semiconductor industry. The benchmark Philadelphia Stock Exchange Semiconductor Index fell 7.8% in 2018 after two straight years of gains of more than 36%.

ARM also knows that success in one area doesn't give it a free pass, and the company has spent the past decade trying to chip away at Intel's dominance in computer technology.

ARM is also eyeing the server market, where Intel has a market share of more than 90%. Over the past decade, ARM-based server processors have also seen many glimmers of hope as chip manufacturers rushed in, but unfortunately they were wrong. This has led to many entrants having to exit the market without winning significant business volume.

In 2018, ARM once again got a chance in this market. Amazon, one of Intel's largest customers, reportedly announced that it was using its own chips in its server network, which were designed based on the Arm architecture.

Segars’ hiring spree has led to rising costs, which has contributed to Arm’s already dire profits. In the most recent quarter, Arm’s costs were £327 million, up 33% from the same period last year. But earnings before certain items were about a quarter of what they were a year ago.

ARM shareholders are not worried at the moment. However, SoftBank's Vision Fund, which holds ARM, has nearly $100 billion from other investors, so the company's freedom to invest in the future is limited. Segars is also aware that Masayoshi Son's expectations are high, because he hopes to get back much more than the $32 billion he spent on acquiring ARM.

“If we’re going to have a successful IPO, we obviously need a lot more performance to eventually get to the multiples that Masa likes,” he said. “My job is to make sure we use this time that we’re a private company to invest like crazy to take all the profits and reinvest them,” Segars said.

Today is the 1826th issue of content shared by "Semiconductor Industry Observer" for you, welcome to follow.

Moore Elite is a leading chip design accelerator with the vision of "making it easy to make chips in China". Its business includes "chip design services, supply chain management, talent services, and incubation services". Its customers cover 1,500 chip companies and 500,000 engineers. We are committed to providing ASIC design and Turnkey solutions, from Spec/FPGA/algorithms to chip delivery, including: chip architecture planning, IP selection, front-end design, DFT, verification, physical design, layout, tape-out, packaging and testing services. Since 2012, our team has been focusing on accumulating technical capabilities to help customers achieve optimal chip performance, and support flexible service models such as Turnkey, NRE, professional consulting and on-site. Moore Elite currently has 200 employees worldwide, headquartered in Shanghai, with branches in Beijing, Shenzhen, Hefei, Chongqing, Suzhou, Guangzhou, Chengdu, Xi'an, Nanjing, Xiamen, Hsinchu and Silicon Valley.