ARM's new CEO: You'll get no 'glorious new strategy' from me
Past performance no guarantee of future success, though
ARM Holdings is the kind of quiet success story Britain excels at, and really the sort of thing the data-fiddlers of Silicon Roundabout should aspire to be doing.
ARM doesn’t wrangle data and pass it off as a business model. It designs patentable processor technology that has turned US, Japanese and South Korean electronics giants into willing customers - including Cisco, Texas Instruments, Nintendo, Apple and – more recently - Microsoft.
Spun out of BBC Micro shop Acorn in 1990 with a single RISC processor, ARM quickly proved its viability: the company went public eight years later, breaking $213m in revenue soon after. It has expanded fourfold to turn over nearly $1bn today as consumer electronics companies, PC makers, network equipment manufacturers and semiconductor firms around the world have licensed chip architectures perfect for embedded systems with their small size, cool running and low power suck.
ARM confounded analysts during its fourth quarter growing sales by 19 per cent while chip giant Intel saw revenues down 3 per cent compared to a year ago.
Almost every smartphone on the planet contains a chip running an ARM-authored chip. Intel, which – unlike ARM – makes its own processors, remains overwhelmingly saddled with a PC-centric business going through a slump.
Now, ARM’s eyeing up mobile computing – the plan is for more than half of all tablets, mini-notebooks and other mobile PCs sold in 2015 to use ARM. Servers, too, are another possibility, with systems coming from Hewlett-Packard and Samsung. Canonical's already tuning its Ubuntu Linux to run on ARM servers.
The sun sets on East
All this happened under chief executive Warren East, CEO since 2001, and which is probably the reason why shares in ARM fell 3.3 per cent to 890 pence when East announced his surprise retirement on Tuesday.
Historians debate the importance of the individual over historic forces, but it seems as far as The Street’s concerned, there’s no debate and one man is responsible for ARM’s success - which is why they are afraid.
Step up East’s replacement: CEO Simon Segars, who has tried to reassure us there won’t be a radical change under his reign. Segars has even gone as far to claim his ideas are actually already being rolled out in the company’s roadmap. Segars, who is ARM's president, joined the firm three years before East. He was formerly the executive vice president of engineering, during which time he worked on the early ARM processors, as well as EVP of worldwide sales and EVP of business development. He held top spots at ARM in both the UK and US.
“I don’t see that the fundamentals of this business will change,” Segars told The Reg during a conference call with press on the day East announced his departure.
“I’ve been involved in development strategy over the years working with Warren, and I don’t see any reason to change. That said, the semiconductor industry is in state of change, so if we need to change tack a bit we will, but that’s how we’ve run this biz - morphing the business to respond.
“You should not expect I will be on a conference call any time saying this is the glorious new strategy for ARM because this is the right thing for us to be doing.”
That may or may not be a good thing. East has justified his sudden and unexpected decision to leave ARM at its highest point as good thing for ARM. Aged 54, he reckons it would have been bad for him to stay into the next round of product planning - he claims development cycles take six years and Segars is seven years his junior. “At ARM we are planning for the things that drive growth in 2020 and beyond. I’ve have been CEO for 20 years and I think that’s too long. It’s not healthy for the business to have somebody leading it for that time,” East said.
Given Segars' age, and using East’s reasoning, this would suggest we should expect another new ARM CEO around 2020.
You can believe what East said if you chose, and we have no alternative but to do so. Certainly it’s an ordered transition. East doesn’t leave for another four months; compare that to Intel’s hunt for a Paul Otellini replacement that’s four months old and still ongoing. Or to the sudden and chaotic departure of Microsoft’s Windows chief Steven Sinofsky in the middle of a major product launch.
But what if East and the ARM board saw something nobody else did?
Caught the competition napping
The past certainly suggests the future won’t be such a streamroller of success for ARM: it infiltrated smartphones almost unnoticed, digging deeper under the boring banner of “embedded systems” and left relatively alone by competitors.
It was the blow-away success of the iPhone and the iPad - which employ ARM’s Cortex CPU - that turned the firm into the kind of sexy tech story that those outside semiconductor industry cared about and one which competitors like Intel suddenly take a lot more seriously.
Intel is now trying to squeeze itself into more smartphones and tablets – most recently Microsoft’s Surface Pro.
Intel’s still struggling, and Surface hasn’t been Microsoft’s finest hour, but ARM recognises a re-invigorated Chipzilla poses a threat. Until now, it has been Intel versus AMD, with the companies see-sawing in terms of who was winning and losing on sales, architecture roadmap and features. A successful Intel under a brand-new CEO could take the fight to ARM. Even before a new CEO, Intel is throwing new Atom chips under ARM’s feet.
Segars reckons he’s not complacent about ARM’s success or the Intel threat. “Competition is good – it keeps you on your toes, whether Intel was in this space or not. It’s a good thing that gives you something to think about,” he says. “We continue to think about what we are doing and make sure we are doing the right thing.”
The future is also a more fragmented place for ARM than the recent past: tablets, servers – even PCs? Tablets are a high-growth market, but servers are still a curiosity – an intriguing high-density and low-power alternative to CISC systems from Intel. But it's those CISC systems that are the de facto standard, no matter their deficiencies of fat footprint and big power pull.
Stories like the one where Chinese search giant Baidu installed ARM-based Marvel servers remain the exception – for now. They might even remain the exception in the future, as it’s only web-scale properties that are the genuine users of Big Data architectures like MapReduce and NoSQL databases, not the average company or enterprise. The server business almost certainly won't match the tablet and smartphone market for size and speed of growth, because the purchasing dynamic is radically different and not consumer-based.
And PCs? That’s a market apparently downsizing itself to small sales and narrow profits, thanks to tablets. While there is talk of an ARM-powered Mac, ARM’s foray into the mobile PC market has so far proven disastrous. Though we shouldn't forget that it was the kiss of Apple that helped create ARM in the first place in 1990 - both financially and with the need for a RISC-based processor on the Newton, which was brand new at the time. It's also worth noting that sales of ARM-based Windows RT slabs from Microsoft and others have tanked.
It’s one thing to cater to all these fields with an ever-expanding product line, but this is expensive work that creates greater cost to the business and risks, both financial and strategic, if investments don’t get licensed. This is, after all, the playbook for all growing companies that at some point lose the unquestioning buy-in of analysts and suddenly must justify who they are and where they’re going. The rising chorus from outside becomes: cut back, restructure, sell off, prioritise.
How does Segars prioritise right now, in 2013?
“We don’t design products for any one end market,“ Segars told The Reg. “We are able to license to companies that add their own IP around what they do. In terms of one market share growth in one end product over another... that’s not what we are fixated on. We are looking to develop technology at the right performance for the lowest power consumption.”
So, in other words, it’s licensees who take the risk. ARM still gets its money no matter what, because it sells to the licensees not to the licensees’ customers. It’s like cash up front.
“As we grow into the PC market, there’s market share we could gain but there are other markets – smartphone continue to grow, server market continue to grow - and our processor tech is very applicable for the new servers people are putting together. I see lots of areas where we can grow with growing markets,” Segars said. ®