Europe South Asia Asia Pacific Americas Middle East Africa BBC Homepage World Service Education
BBC Homepagelow graphics version | feedback | help
BBC News Online
 You are in: Business
Front Page 
UK Politics 
Market Data 
Your Money 
Business Basics 
Talking Point 
In Depth 
Monday, 28 February, 2000, 15:42 GMT
The secret of Arm's success

Robin Saxby says the strong growth will continue
by BBC News Online's Orla Ryan

Some technology companies chase investors with promises of future profits.

Not computer chip company Arm.

Last year alone its profits doubled and its share price increased 1000% to 5,000 pence as investors scrambled to get their hands on the stock.

The one dark cloud on Arm's horizon is a company called Transmeta. Its new chip - called the Crusoe chip - could upset Arm's position as one of the world's top chip designers.

Chips with everything

Arm's chips are in everything from mobile phones, minidisc players, digital cameras, games machines to printers.

Many mobile phones contain Arm chips
The beauty of Arm's success is that it doesn't make computer chips.

It designs and licences them. It charges its licensees a one-off fee and then reaps a royalty fee each time a product containing an Arm chip is sold.

"It is a momentum business," chairman and chief executive Robin Saxby explains.

Last year's 18m profits were the fruit of the previous years' efforts. The long design cycle in the computer business meant that chips licensed three years ago only came to market last year.

Every product sold containing an Arm product brought with it a royalty fee that was pure profit.

Hence, profits grew faster than sales.

The share of its revenues attributed to royalties doubled to 18% last year and is set to continue growing.

Of Arm's 37 semiconductor partners, only 19 were shipping products last year. Another five or six can be expected to start this year, Robin Saxby said.

"The opportunity is there for continued high growth," Mr Saxby says.

This year's sales may also receive an added boost from Nintendo. Arm is supplying the chip for the new Nintendo Gameboy, due for release in September.

The Transmeta effect

In an increasingly digital world, it is easy to see why Arm is optimistic. Its chips, widely used in mobile phones and can readily be adapted for use in other products.

"Demand for our technology is high... . The world is getting more digital. It depends on how fast our partners can ramp up production," Mr Saxby says.

The only potential rival for Arm is a company called Transmeta.

When the company recently unveiled its Crusoe chip, the steady rise of Arm share price was interrupted, albeit only briefly.

Using the open access philosophy and a little bit of help from Finnish software guru Linus Torvalds, the inventor of Linux, Transmeta has developed a new chip.

Its selling point is that it uses less battery power than conventional chips and its target market is the chips that power laptop computers, traditionally the domain of Intel.

"That is the market we have always said we would never enter. We have always stopped going head to head with Intel," Mr Saxby says.

He adds: "We are in portable phones, they are in portable PCs."

But as mobile phones offer wireless internet access, it is not a great leap of the imagination to see that Arm could one day be competing with Transmeta.

Mr Saxby attributes the recent brief sell-off in the Arm share price to investor's misunderstanding of the technology.

"We have a major education job to do in the UK. The US investors are more savvy about technology than UK investors," he says.

Mr Saxby even wagers a guess that Transmeta could be good for Arm.

"In these portable PCs, there is the opportunity for Arm chips, if Transmeta is successful and creates more of a market for PC chips, we will probably sell more Arm chips," he predicts.

Embedded growth

Mr Saxby believes that technology stocks can match market expectations.

The total embedded chip market is currently 3.5 to 4 billion chips, but is forecast to hit 14 billion by the year 2003-2004.

For Arm to keep ahead in this market, research and development is the key.

But Arm, who wants to increase its staff by 20% each year, has found itself thwarted in its ambition to build on its UK research site.

Firstly because of the lack of suitably qualified people and secondly, because the people who can do the job are wooed to the US by generous share option packages.

Measures introduced in the Budget last year make it difficult for Arm to offer share option packages that exceed 30,000.

"Our total asset in Arm is people," he argues. "It is easier to hire people in Austin, Texas, than it is here."

"We have had a brain drain from this country for quite a while. This is stupid. If we are really in favour of the e-economy, we had better fix this," he says.

Search BBC News Online

Advanced search options
Launch console
See also:

31 Jan 00 | Business
Arm profits doubled
25 Oct 99 | The Company File
Intel deal boosts chip firm
02 Sep 99 | The Company File
Nintendo to use UK chips
Internet links:

The BBC is not responsible for the content of external internet sites

Links to other Business stories are at the foot of the page.

E-mail this story to a friend

Links to more Business stories