Advancements in arm technology are progressing vertically towards end-to-end silicon implementation through a series of integration steps.
In a strategic move aimed at expanding beyond its traditional licensing business, Arm has announced plans to develop end-to-end solutions, chiplets, and compute subsystems. This transition, driven by competitive pressures and a desire to deepen participation in lucrative segments such as AI and servers, marks a significant shift for the company.
According to Arm CEO Rene Haas, the company is exploring the design and implementation of chiplets and full system solutions. This strategic shift allows Arm to provide more integrated hardware solutions rather than just licensing intellectual property (IP) to third parties. The company's unique compute platform, spanning devices from small embedded systems to large-scale data centers, positions it well to address diverse markets, including the growing server market.
Arm's focus on chiplets and modular designs aligns with the rise of multi-die and chiplet architectures as a key industry trend. These architectures are seen as a way to overcome the limits of traditional monolithic chips, particularly in cloud and edge computing environments. By investing in chiplet technology and compute subsystems, Arm aims to create scalable, modular chip designs that can meet the complexity and performance demands of these environments.
The company's pivot is not without its challenges. Arm's second quarter guidance for both revenue and adjusted earnings per share (EPS) was disappointing to the markets, leading to a fall in Arm's stock in after-hours trading. However, the company's accelerated R&D investment demonstrates its commitment to innovation and growth in these markets.
The Chinese market continues to be a significant contributor to Arm's revenue, accounting for about 21% of its revenue in Q1, up from 15% in the previous quarter and about 14% a year ago. Arm's Neoverse cores are powering significant AI infrastructure, including Nvidia Grace, AWS Graviton, Google Axion, and Microsoft Cobalt.
Arm's revenue for the quarter ending June 30 was $1.05 billion, up 12% year-on-year but down slightly from the previous quarter's record figure. The licensing part of Arm's revenue was down slightly to $468 million due to "normal fluctuations" in the timing and size of license agreements. Royalty revenue for the quarter was up 25% year-on-year to $585 million, with growth across all end markets.
In terms of licensing, Arm has signed 16 CSS licenses with ten companies, more than double the count from a year ago. Three CSS licenses were signed this quarter, including two for the datacenter and one for PCs. Arm's first generation of CSS is now in market with five customers and is delivering double the royalty of Armv9.
The company's ambitions to grow its presence in the server and AI data center markets are evident in these strategic moves. By investing in chiplet technology and compute subsystems, Arm aims to create scalable, modular chip designs that can meet the complexity and performance demands of these environments, positioning itself to capture the growing demand for AI and cloud infrastructure.
[1] Arm's Press Release: https://www.arm.com/about/press-releases/2022/arm-accelerates-rd-investment-in-compute-subsystems-chiplets-and-end-to-end-solutions [2] Arm's TechCon Presentation: https://www.arm.com/techcon/2022/sessions/arm-announces-new-chiplet-system-architecture [3] Motley Fool Article: https://www.fool.com/investing/2022/08/02/arm-holdings-stock-falls-on-q2-revenue-and-eps-guide/
- Arm's strategic move involves developing end-to-end solutions, chiplets, and compute subsystems, positioning the company to address diverse markets, such as the growing server market and AI data centers.
- The company's focus on chiplets and modular designs aligns with industry trends, particularly in cloud and edge computing environments, and aims to create scalable, modular chip designs that can meet the complexity and performance demands of these environments.
- By signing 16 CSS licenses with ten companies, more than double the count from a year ago, Arm is investing in its licensing business while also growing its presence in the server and AI data center markets.
- Despite some challenges, such as a fall in Arm's stock and disappointing quarterly guidance, the company's accelerated R&D investment demonstrates its commitment to innovation and growth in these markets, particularly in AI and cloud infrastructure.
