Arm Holdings shares rose on the chip-design firm’s reported move into making its own semiconductors. The losers from the shift could be Broadcom and Marvell Technology.
A move into chipmaking would mark a huge shift for Arm, which built its business on licensing out chip designs. The risk is that Arm could be viewed as a competitor for some of its biggest customers such as Qualcomm and Nvidia.
However, Arm-produced chips could instead end up taking some value away from Broadcom and Marvell who help design in-house processors for major technology companies.
Arm does most of its business licensing its designs for handsets, but it also has a growing position in high-end cloud-server processors. Its first chip is set to be a central processing unit for large data centers, to run artificial-intelligence applications with Meta Platforms as an initial customer, according to a report from the Financial Times.
Rather than providing an entire chip to Facebook-parent Meta, Arm is more likely to be providing only a modular “chiplet,” which Meta or any other customer could integrate into their own overall chip design, according to Jefferies equity sales specialist William Beavington, writing in a research note on Monday.
“It does not significantly change the business model and does not make Arm a competitor in the chip market,” Beavington wrote.
Arm declined to comment, while Meta didn’t respond to a request for comment. Arm share rose around 6% immediately following the FT report.
“We regard the move as being significantly positive for Arm’s revenue and earnings outlook, though it could have a negative impact on its valuation multiples, as gross margins would come down,” wrote Beavington in a research note on Monday.
However, one open question is the ambitions of Arm’s majority owner, Japan’s SoftBank Group, which has chipmaking ambitions of its own. SoftBank recently bought British AI chip company Graphcore and was previously reported to be interested in joining with Intel in a deal to manufacture chips to rival Nvidia, in a partnership that subsequently fell through.
SoftBank has been reported by Bloomberg to be nearing a deal to acquire Ampere Computing in a deal that could value the data-center chip maker at about $6.5 billion.
“Competition with clients could intensify further if SoftBank acquires Ampere which could greatly accelerate Arm’s migration to becoming a chip maker,” wrote independent analyst Richard Windsor, who published Radio Free Mobile.