Arm planning new pricing model
Royalties shake-up could be big boost to revenue
SoftBank is striving to improve Arm's profit margins to make the firm more appealing ahead of its planned IPO.
British chip designer Arm is considering increasing the price of its chip designs, particularly its 'Cortex-A' designs that are common in smartphone processors.
Arm designs chips used in a significant proportion of the world's smartphones. According to the Financial Times, Arm is planning to introduce a new pricing structure for its chip designs this year, before its initial public offering in New York.
Japanese conglomerate SoftBank acquired Arm for £24.3bn in 2016, and has been discussing an IPO since 2020.
The FT suggests SoftBank is pushing for higher profit margins at Arm to push up the company's stock price.
Industry executives and former employees told the FT Arm has already told several customers about its revised pricing strategy.
The modifications will primarily focus on Arm's most notable Cortex-A designs.
Under the current pricing model, chipmakers like Qualcomm and Mediatek pay Arm a licensing fee, along with a nominal royalty based on the price of each chip they distribute to phone manufacturers.
Arm now plans to stop charging chipmakers those chip-price-based royalties. Instead, it will charge device manufacturers based on the average selling price of the end device.
This modification is expected to generate significantly more revenue, as the value of an average smartphone is much higher than that of a single chip.
According to data in the FT, the typical Qualcomm chip is sold for $40, and Arm receives a royalty of 1%-2% (40-80 cents). The average smartphone, however, is sold for $335.
Even though the revised pricing model is likely to adjust royalty fees, this could still represent a huge boost to Arm's revenue.
"Arm is going to customers and saying 'We would like to get paid more money for broadly the same thing,'" a former senior employee who left the company last year told FT.
"What SoftBank is doing at the moment is testing the market value of the monopoly that Arm has."
Another change under the new model involves who chip makers can sell to.
Under the new terms, Arm will only authorise manufacturers to sell chips to device makers who agree to the revised pricing strategy - a rumour we first saw last year, when Qualcomm accused Arm of restrictive licensing practices.
The report says companies such as MediaTek, Unisoc, Qualcomm, Xiaomi and Oppo have been told about the proposed changes.
Arm had initially planned to implement the pricing overhaul as early as next year, but customers have resisted.
Arm reported record revenues for its first financial quarter, ended June 2022, making it one of the bright spots for SoftBank Group, which made a group-wide $23.5 billion loss for the same period.