Arm Holdings (ARM 4.11%) went public again on Sept. 14, 2023, seven years after it was acquired by the Japanese conglomerate SoftBank. The British chip designer listed its shares at $51, which continue to hover around that price now over concerns about its declining revenue, shrinking operating margins, and high valuations.
Most investors likely know these three key things about Arm:
- It only licenses its designs to other chipmakers instead of manufacturing them.
- It prevented Intel's (INTC -9.20%) x86 chips from gaining a foothold in the mobile market with its more power-efficient chip designs
- More than 95% of the world's smartphones currently use Arm-based chips.
But today, I'll discuss three lesser-known facts about Arm's history and its competitive threats.
Image source: Getty Images.
1. It wouldn't exist without Apple
Apple (AAPL -0.35%) licenses Arm's architecture for its A-series chips for mobile devices and M-series chips for Macs and high-end iPads. That makes Apple one of Arm's top customers and a top beneficiary of its production of first-party chips.
Arm probably wouldn't exist without Apple. Back in 1990, Acorn Computers, VLSI Technology, and Apple formed Arm as a joint venture to challenge Intel's x86 architecture with power-efficient chips that were easy to program and scale. By prioritizing battery life and technical flexibility over raw horsepower, Arm-based chips became more appealing than x86 chips for many mobile chipmakers. That's why Apple put an Arm-based chip in its first handheld computer, the Newton, in 1993.
In early September, Apple signed a new deal with Arm which extends their current partnership "beyond 2040." Apple also joined Advanced Micro Devices, Alphabet's Google, and Samsung as one of the 10 "cornerstone investors" that invested an aggregate of $735 million in its IPO. Tony Fadell, the former senior VP of Apple's iPod division, also sits on Arm's board.
2. Arm shares the same roots as its open-source rival
Arm was originally an acronym for "Acorn RISC Machine" because its first product was a reduced instruction set computer (RISC) chip for Acorn's Archimedes computer. But when Arm was incorporated in 1990, it changed its acronym to "Advanced RISC Machines" to focus on a broader market beyond Acorn computers.
Over the following three decades, Arm's RISC designs evolved to suit the needs of different chipmakers. Arm also made its instruction set architecture (ISA) proprietary, which enabled it to collect royalties and licensing fees from all Arm-based chipmakers. However, those licensing fees drove some chipmakers to revisit the open-source RISC architecture to develop new power-efficient designs. The biggest RISC-based project is RISC-V (pronounced as "Risk Five"), which was developed at the University of California, Berkeley over the past decade.
Several tech giants -- including Google, Nvidia, and Western Digital -- have all started developing RISC-V chips in recent years. In its IPO filing, Arm admits many of its customers are "also major supporters of the RISC-V architecture and related technologies," and Arm warns they "may choose to utilize this free, open-source architecture instead of our products."
3. Intel once produced Arm-based chips
Intel's investors will likely recall it lost the mobile chip market to Arm because it stubbornly believed its own Atom x86 chips could adequately power smartphones, tablets, netbooks, and hybrid devices. Intel also refused to produce the CPU for Apple's first iPhone because it didn't believe the device would take off.
Intel also sold its Xscale division, which produced its own Arm-based chips, to Marvell Technology in 2006. It seemed like a good idea at the time, since it freed up more resources for the development of Intel's own Atom chips, but it turned out to be a historic mistake that caused it to broadly miss the seismic shift from PCs toward mobile devices.
If Intel had simply expanded Xscale and leveraged its dominance of the PC and server markets to sell its new mobile chips, it could have become a major Arm-based mobile chipmaker alongside Qualcomm and MediaTek. Instead, Intel remains stuck in those two markets as Arm-based chips gradually creep into PCs and servers.
Arm still isn't a compelling buy yet
I recently warned that Arm's stock wouldn't be worth buying until its valuations cool off and the macro environment improves. Arm won the mobile war against Intel and Apple remains one of its biggest backers, but the rise of RISC-V chips could eventually disrupt its long-term growth. In other words, these three facts won't alter my overall opinion about Arm's future.
