Chip industry concerned as Arm, tech supplier to Apple and Qualcomm, plans price hike

Arm Holdings, a major player in the semiconductor industry, is making ambitious moves to boost its revenue and influence. The company is increasing royalty rates for some of its chip designs by up to 300%, with the goal of generating an additional $1 billion annually over the next decade. This initiative, known as the “Picasso” project, focuses on its latest Armv9 architecture, targeting customers who use ready-made chip designs.

Arm’s fiscal year 2024 revenue stood at $3.23 billion, significantly smaller than that of its major customers like Apple. For comparison, Apple’s revenue from Arm-powered hardware is over 90 times larger. To bridge this gap, Arm is also considering a dramatic shift in its business model by designing and manufacturing its own chips. If implemented, this move would place Arm in direct competition with its largest clients, including Apple and Qualcomm.

The potential entry into chip-making raises concerns among customers and analysts. Arm’s proposed chip products include chiplets, smaller components that can be integrated into larger processors. However, this strategy risks alienating key customers, who may respond by designing their own chips and reducing reliance on Arm’s pre-made solutions. Qualcomm, for instance, has already taken steps to reduce its dependence on Arm technology.

Internal discussions and court documents reveal that Arm has been exploring these strategies since 2019. CEO Rene Haas has been a vocal advocate for change, expressing frustration with the company’s reliance on major customers and pushing for greater control over its technology.

SoftBank Group, which owns 90% of Arm, has supported these aggressive growth plans. However, the strategy comes with challenges. Higher royalties and direct competition with customers could disrupt long-standing relationships. Arm also faces competition from alternative chip designers, who might capitalize on the dissatisfaction of existing customers.

In a recent legal dispute, Arm accused Qualcomm of breaching licensing agreements, but a U.S. jury ruled in Qualcomm’s favor. This ruling could further embolden customers to seek alternatives to Arm’s technology.

While Arm’s new strategy aims to reshape the semiconductor market and boost revenue, its success depends on balancing growth with maintaining customer trust. The company’s bold plans have the potential to redefine its role in the industry, but they also carry significant risks.