ARM Holdings: From an Acorn to British success story

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Chipmaker ARM Holdings plc is set to be taken over by Nvidia Corporation (NASDAQ:NVDA) after the US graphics card maker agreed a US$40bn cash and share deal to buy the Cambridge-based firm from its Japanese owner, SoftBank.

The deal for an overseas giant to buy one of the UK’s prized companies has sparked controversy from the political arena, with Labour shadow business secretary Ed Miliband calling on the government to extract “legally binding assurances from Nvidia should it take over the company to keep ARM headquartered in the UK rather than see jobs and decision-making moved across the ocean”.

READ: Nvidia swoops to buy British chipmaker Arm for AI push

The deal has also attracted the ire of ARM’s co-founder Hermann Hauser, who told BBC radio that Nvidia will “destroy ARM’s business model” as it licenses its semiconductor architecture to around 500 companies, many of which are competitors of Nvidia.

ARM’s takeover, and the ensuing backlash against its potential migration away from the UK, likely has its roots as a very homegrown character, emerging out of British firm Acorn Computers in the early 1990s into an international heavyweight and arguably Britain’s most successful tech company.

From an Acorn – ARM’s origins

ARM was originally founded in 1990 as a spin-out of Acorn Computers, the firm behind the BBC Micro, a microcomputer that became a stalwart of schools around the UK and also found success as a home computer system in the 1980s.

The funds from the BBC Micro were used by Acorn to develop its ARM architecture for computer processors before that segment was detached into its own company at the turn of the following decade.

Acorn wasn’t the only firm involved in the setting up of ARM, with the company a product of a joint venture between Acorn, Apple Computers (now known as Apple Inc (NASDAQ:AAPL)) and Silicon Valley computer chip maker VLSI Technology Inc.

Business brains and happy accidents

A key component of ARM’s business model, licensing its chip technology to vendors who would then build onto the architecture and resell it, proved to be a core element in making the company a huge success in the tech sector as computers began to gain traction in the market.

Apple’s input also proved to be a key advantage in the firm’s success, with the tech giant using ARM chips in its early iPods, smartphones and tablets as well as in some of its laptops. The company also used ARM tech in its Apple Newton series of personal digital assistants (PDAs), which came out in 1993 only to be discontinued five years later due to issues with its high cost and unreliable handwriting recognition system.

ARM has also returned the favour to Apple for supporting its creation, with Hauser saying previously that Apple sold its part ownership of ARM for US$800mln over several years, helping to save the company from bankruptcy in the late 1990s.

However, the existence of ARM chips in itself is partially the product of a happy accident where rival chipmaker Intel Corporation (NASDAQ:INTC) refused a request by Acorn to try out its 16-bit processor, which led to Acorn creating its own Reduced Instruction Set Computer (RISC) Machine, which first saw us in the BBC Micro and eventually paved the way for the ARM line of semiconductors.

Other happy accidents for ARM have included the unintentionally low power requirement of its products, which led to the creation of Raspberry Pi and other low-powered computers in use today.

Market listings and tech dominance

ARM continued to grow throughout the computing boom of the 1990s, becoming profitable in 1993 and opening new offices in Silicon Valley and Tokyo in 1994.

In 1998, the company listed on the London Stock Exchange and the Nasdaq in New York, and by 2005 around 98% of all mobile phones used at least on ARM processor, while by 2011 ARM architecture was the most widely used in mobile devices and 32-bit in embedded systems.

By 2013, ARM-based chips could be found in almost 60% of mobile devices around the world, with around 10 billion chips produced in that year alone.

The company’s growth was also accompanied by a string of acquisitions, including fellow Cambridge-based software consultancy Micrologic Solutions in 1999 and, later on, Internet of Things (IoT) startup Sensinode in 2013 and enterprise data management software group Treasure Data in 2018.

In 2015, the company also helped to set up the OpenFog Consortium, a group of firms promoting the use of fog computing, an expansion of cloud computing designed to handle huge numbers of IoT devices and big data volumes for real-time, low-latency applications.

The consortium includes Dell Inc (NYSE:DELL) as well as Microsoft Corp (NASDAQ:MSFT), Intel and Cisco Systems Inc (NASDAQ:CSCO).

Softbank buyout and the future under Nvidia

In July 2016, ARM was taken private in a deal with SoftBank that valued the firm at around US$32bn (GBP23.4bn), a move that some [LINK] credited with helping to keep the company’s research & development (R&D) going and retain its competitiveness. However, there appear to be more misgivings about the acquisition by Nvidia.

Concerns about a takeover of ARM have been circulating since July, when Masayoshi Son, the head of Softbank, said the Japanese investment fund was considering selling ARM as part of a strategy to boost its cash balances and recover from a historic loss earlier in 2020 amid the coronavirus pandemic.

The purchase was originally the product of an aggressive investment strategy by SoftBank that has since been reined in, however, the US$40bn price tag means SoftBank is likely to at least profit from the sale.

However, others are looking toward similar acquisitions in the past with a wary eye as a foreign firm takes direct control of a successful UK firm.

The fate of Imagination Technologies

A recent case that may jangle nerves is that of fellow UK computer chip designer Imagination Technologies, which in 2017 was acquired for GBP550mln in a controversial deal with Canyon Bridge Capital Partners, a private equity group bankrolled by Chinese government-backed China Reform Holdings.

The takeover was approved despite concerns over the influence of China over the company, an issue that re-emerged in April this year when Imagination’s chief executive Ron Black and two other executives resigned from the company after a row broke out over moves by China Reform Holdings to install four directors onto the company’s board.

Imagination is now headed by Ray Bingham, who helped set up Canyon Bridge in 2016 and is reportedly eyeing to float Imagination within the next three to four years, however, the location of the float may depend on the outcome of ongoing geopolitical tensions between China and the rest of the world.

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