By Nick Flaherty www.flaherty.co.uk
Having tracked ARM and the embedded semiconductor since it started, today's £24bn takeover by Japanese services company Softbank didn't really make much sense.
SoftBank says it believes ARM is one of the world’s leading technology companies, with strong capabilities in global semiconductor intellectual property and the “Internet of Things” (IoT), and a proven track record of innovation, which is very true. After all, ARM has successfully built a differentiated position as the world’s leading semiconductor intellectual property supplier, with a core competency in scalable, highly energy-efficient processors and related technology. Its technology is embedded in more than 95 per cent. of smart phones and over 30 per cent. of all chips with processors sold worldwide in 2015. Over 85 billion systems-on-chip have been shipped to date based on ARM’s technology.
Yes, ARM-based chips dominate the mobile phone business and the company was an early starter in the IoT business through its low power and existing software development eco-system, and its security expertise will be increasingly important. But why was Softbank willing to pay 40% over the highest value ARM had ever seen (which was in March last year)? The ownership of the Sprint network in the US is seen as one factor now that it is showing signs of recovery, bundling cellular services with IoT equipment in the US, but is that enough? Not really.
The key section of the deal document shows SoftBank’s deep industry expertise and global network of relationships will accelerate adoption of ARM’s intellectual property across existing and new markets. SoftBank intends to sustain ARM’s long-term focus on generating more value per device and driving licensing wins and future royalty streams in new growth categories, specifically “Enterprise and Embedded Intelligence”.
So it is the enterprise, where Softbank has large and valuable contracts, that will be the focus, with more ARM-based systems being specified in the billions. All the data that is captured gives this high valuation, and Softbank's expertise is in handling that kind of business data. So the ARM devices are the on-ramp to the data highway (yes, that shows my age!) for Softbank.
That's good news for ARM. The existing senior management team will stay in place, with funding to double the number of staff in the UK over the next five years, and increase staff in the rest of the world, which I would expect to be led by Japan following the joint venture announcement last with with Aeris
, a pioneer in the IoT market. The joint venture, Aeris Japan K.K., will provide IoT and telematics services globally using the Aeris IoT platform.
This is aimed at enterprise users, with the AerPort connectivity management platform
, AerCloud applications enablement platform
, AerCore IoT network
and AerVoyance IoT analytics platform
. With more than 7.5 million devices under management, Aeris is already one of the largest IoT service providers in the world, and the SoftBank deal provides the resources to expand into India, Europe and the United States, covering multiple market segments and offering a variety of services ranging from an IoT connectivity platform to IoT application middleware to complete IoT solutions for market segments including telematics in the automotive industry.
predicts IoT will account for one quarter of the global 41 million 5G connections in 2024. Japan and Korea will lead the charge and embedded factory-fit connected cars will be the biggest IoT application, according to Machina Research. Japan will lead the Asia-Pacific region’s market growth for industrial IoT, which is expected to be worth $54 billion by 2020, according to tech research firm Technavio
Aeris also delivers an end-to-end IoT technology platform, which enables faster time-to-market for enterprises. Security is a priority for Aeris, which offers enterprises and mobile network operators an end-to-end solution ranging from connectivity services to data analytics and applications, and early access to ARM's security technology such as TrustZone will boost is competitiveness.
This also sees ARM's technology driving further into automotive telematics, as Aeris has a telematics solution for automotive original equipment manufacturers (OEMs) including a full suite of driver, dealer and OEM services.
The great thing for ARM is that SoftBank doesn't compete with any of its semiconductor partners. But its probably not such good news for Renesas, which was the major competitor to ARM in Japan after having brought together the chip arms of Hitachi and Mitsubishi.