ARM isnot the only computer chip company that does not manufacture its own products. Most small semiconductor companies rely on bigger partners or contract manufacturers for production. But to keep its costsdown, ARM goes a step further: rather than selling chips, it simply sells licenses to use its intellectual property. Revenues come from up-front licence fees, royalties, and support and service fees.ARM is therefore what Saxby calls a “chipless chip company.”
The downside of this business model is that because development is expensive, there must be many customers for it to be economicallyviable. ARM’s timing was good: the low power requirements of its designs compared to competitors made it the system of choice in the mobile electronics industry, which was then beginning to grow rapidly.Today ARM licensees include many of the major players in the chip industry, including Intel, IBM, Texas Instruments, and Sharp.
Leaving the manufacture of chips to the customer made expansion ofthe company simpler than it may have otherwise been. Today ARM is a global corporation, employing more than 720 people in facilities in nine countries. It has design centres in Blackburn, Cambridge andSheffield (UK), Sophia Antipolis (France), Walnut Creek (California, USA), and Austin (Texas, USA). ARM also maintains sales, administrative and support offices in China, France, Germany, Japan,Korea, Taiwan, Israel, UK and USA. In April 1998, ARM listed on the London Stock Exchange and NASDAQ.
Lessons on Size
* ARM leveraged the benefits of a licensing business model: the costs of...