Comment by aurareturn
7 days ago
Arm's biggest customers are also their biggest competitors. Apple and Qualcomm use their ISA license instead of their Core architecture license. ISA license pays a much smaller royalty fee.
Now that Apple and Qualcomm both design their own custom cores, Arm's custom core license business is suffering. The only other company that license their custom cores for phones is Mediatek. Arm still has hyperscalers in Google, AWS, Microsoft, and Meta for server core licenses though. But that might not last as long since everyone wants to differentiate and design their own cores. Apple and Qualcomm are succeeding in designing better custom cores than original Arm cores.
So Arm's business model has to change if they want to survive.
Either they make ISA license fees much higher (risk losing customers to RISCV) or they make their own CPUs and compete against their own customers even more.
I enjoy analyzing chip companies and businesses. I've never invested in Arm's stock because their customers are also their competitors. Ultimately, the questions for Arm investors are:
1. Do you believe they can design better cores than Apple and Qualcomm (and other big tech)?
2. Do you think that the threat of companies moving to RISC-V is real if Arm raises ISA royalties?
I don't have any note-able industry insights to add, I just feel the urge to point out that
> I've never invested in Arm's stock because their customers are also their competitors.
Also applies to Nvidia. And there as been a lot of controversy related to exactly that reason. The most note-able being EVGA just throwing in the towel and sunsetting their entire GPU department. (And that predates the current LLM / AI boom)
I guess it's a showcase of a company leveraging this relationship
For Nvidia and AMD, it's the same question.
Can Nvidia design a better AI chip than their customers? Can AMD design a better server CPU than their customers?
Nvidia is proving they can. Arm has already lost the performance and efficiency crown to Apple and will likely lose soon to Qualcomm, if not already.
I think the GPU business is also fundamentally different than CPUs. For CPUs, it's all about interoperability. The ISA is the same. You can swap out any RAM easily. You can run Windows, iOS, Android, Linux. The only thing you're differentiating on is performance, efficiency, and the chip size.
For GPUs, everything is custom. There are far more ways to differentiate. Nvidia can differentiate through ISA, CUDA, chip design, cooling design, packaging design, rack design, networking chips, etc. Nvidia is more about selling systems than a chip.
Risc-v seems to be rapidly filling in their moat.
Very little software on android is written in assembly, and binary translation seems to be solved anyway.
Arguably, the LLM boom might be the best thing to happen to RISC-V. If software is cheap to produce, it'll be hardware cost that matter more. IE. Companies might say screw the royalty fees, we'll just ask an LLM to convert our software to run on RISC-V.
I think that for 95+% of companies that write software, it's not particularly sensitive to the ISA of the processor it's running on. Anyone who is writing code in a high level language like python or java doesn't care whether they're on x64, ARM or RISC-V. Compilers essentially already do this. There are specific situations (SIMD extensions, cryptography instructions, etc) where the differences sometimes get exposed, but it's pretty rare that this isn't abstracted away.
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We're starting to see some of this trickle through, but an AI that's really really good at recompiling binaries and remapping system calls and graphics calls is imo possible.
An emulation and platform support dream. Run almost anything anywhere.
It'll probably be a dream
To me, that seems like a misreading of the market.
Apple and Qualcomm don't sublicense so they are not really Arm competitors. Plus, ARM was always a convenient way to mutualise development costs without the risk of collusion. I am not sure it's changing.
You say people want to differentiate but Google constant failures to bring a state of the art offer with the Tensor shows that it's not that easy. Meanwhile Mediatek is competitive while remaining close to ARM design.
I don't think the market has changed that much on the high-end. The real question is how free will ARM be to export their future architectures. That's more where I see a risk.
That and the low-end being contested by Risk-V.
Apple and Qualcomm absolutely are Arm competitors. Otherwise, Arm wouldn't have sued Qualcomm over the Nuvia deal.
Arm makes far more money licensing their cores than their ISAs. If their entire business was reduced to just licensing their ISAs because their cores can't compete against their customers' custom cores, then they will be at a highly disadvantaged position.
It's more about losing a customer than about competition to me in the case of Nuvia. I guess technically if you squint hard enough you could say Arm and Qualcomm are competing for Qualcomm sells but that's a bit of a stretch.
The important things for Arm is not so much the few customers with competitive cores which are great marketing but the multitude of other customers who don't have the budget to design their own core. It's far from trivial as shown by the Google exemple.
>1. Do you believe they can design better cores than Apple and Qualcomm (and other big tech)?
Define better. Because ARM is delivering better CPU Core and Value through their C1 and C2 without having its customer setting up its own R&D on CPU design. Not to mention the GPU and other IPs that comes with it.
> But that might not last as long since everyone wants to differentiate and design their own cores.
That is easier said than done. Had that been the case, the largest Hyperscaler of all, Amazon would have had their own CPU core on Graviton. Designing CPU Core is one thing, making them and integrating them properly to suit their own workload is an entirely separate effort.
>So Arm's business model has to change if they want to survive.
They can continue to do what they are doing today to survive perfectly fine. I assume you want change because you want them to grow.
Also, ARM's business model isn't just on Smartphone. There are billions of places if not trillions of places where ARM core exist.
There is also a funny effect that companies can buy part of arm to get a "discount" on ISA royalties since part of the profits will come back to them + the general profits of ARM.
> Either they make ISA license fees much higher (risk losing customers to RISCV)
If ARM goes down this path, it'll be a classic “innovator's dilemma” cycle leading to disruption.
ARM is clearly the superior incumbent technology, with a vast software base, billions of devices, extremely optimized designs, and huge amounts of engineering experience at the companies that use it; RISC-V is less capable on all counts.
And yet RISC-V is likely to eat ARM's lunch gradually—and then rapidly—over the next decade or so, due to being cheaper to build new cores on.
Isn’t apple actually an early investor and co-owner of ARM?