Investing.com -- Arm Holdings (NASDAQ:ARM), a key supplier to chip manufacturers, is planning a significant shift in its business strategy. The company is considering an increase in its prices by up to 300% and contemplating designing its own chips, positioning itself as a competitor to its largest customers, according to a Monday report by Reuters.
The company licenses the intellectual property used by tech giants such as Apple (NASDAQ:AAPL), Qualcomm (NASDAQ:QCOM), and Microsoft (NASDAQ:MSFT) to design their chips, charging a small royalty for each chip produced using Arm technology.
Despite its pivotal role in the growth of smartphones and energy-efficient data center chips, Arm's revenue has remained relatively modest compared to its clients. For the fiscal year 2024, Arm's revenue stood at $3.23 billion. In contrast, Apple's revenue from hardware products, all powered by Arm-based chips, was over 90 times larger.
Masayoshi Son, CEO of SoftBank (TYO:9984) Group, which owns 90% of Arm, and Arm CEO Rene Haas are aiming to change this scenario. Their plans, revealed during a recent trial where Arm unsuccessfully tried to secure higher royalty rates from Qualcomm, indicate a shift in the company's long-term strategy.
Arm's plans, known in the early stages as the "Picasso" project, have been in the works since at least 2019. The goal is to increase the annual smartphone revenue by approximately $1 billion over a decade. This increase is expected to be achieved partly by raising the per-chip royalty rates that customers pay for ready-made parts of chip designs using Arm's latest computing architecture, Armv9.
In August 2019, Arm executives discussed a 300% rate increase. By December 2019, Simon Segars, then CEO of Arm, informed Son that Arm had secured a deal with Qualcomm for using ready-made technology under the "Picasso" initiative.
However, large customers like Qualcomm and Apple, who have the capability to design their chips from scratch using Arm's architecture, may not necessarily be affected by these rate hikes. As Rene Haas pointed out in a 2021 Microsoft Teams chat, these companies have existing agreements that could allow them to use less of Arm's ready-made technology.
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