ARM Holdings is, by one measure, the biggest microchip company in the world.
More than four billion microprocessors based on its designs were shipped
last year, accounting for 25percent of the world's production.
And that means that ARM chips are everywhere, at the heart of advanced digital
products from wireless, networking and entertainment gadgets to imaging,
automotive, security and storage devices.
Every leading brand name in mobile phones, from the iPhone to BlackBerry, uses
ARM products. Other partners include TomTom (navigation), Nintendo and Sony
PlayStation (gaming) and Samsung (digital television). Ninety ARM processors
are shipped every second; the ten billionth unit was produced last year.
Demand seems insatiable.
Warren East certainly would like to think so. The chief executive of ARM
Holdings will be in Barcelona this week, attending the Mobile World
Congress, where he will oversee the launch of a new processor and will make
the rounds of the big players in the sector.
It is anything but a corporate jolly: ARM sells companies the intellectual
property building blocks to make complex processors, generating money from
the licences on its blueprints and collecting royalties every time that one
of its chips is produced - so conversations at the congress can count for a
lot.
Mr East will be buoyed further by a healthy set of quarterly results this
month. The company posted a rise in normalised pre-tax profit of 57 per cent
to £33.4 million. Net profit for the full year to December 31 rose to £43.59
million, compared with £35.25 million a year earlier.
More than 750 million ARM chips were shipped in mobile phones in the quarter,
up 35 per cent, and 450 million chips were shipped in other devices, up 70
per cent. The company raised its final dividend 10percent to 1.32 pence. All
this has been done amid a global downturn that has turned into a deep
recession and with the prospect of more economic misery to come
“We expect the next 12 months to be very difficult,” Mr East said, “but we are
still expecting to be outperforming the sector by some margin. Over the past
five years, the compound annual growth rate in semiconductors has been
between 4 and 5 per cent. ARM's royalties have been growing at 20 per cent.”
The climate is not all bad, either. ARM, which employs 1,750 people in design
centres in Cambridge and around the world, has benefited from the weak pound
as it books 95 per cent of its sales in dollars but reports in sterling.
Furthermore, some of the impact of the recession has been delayed as the
reporting of royalties is a quarter behind.
Mr East acknowledged that ARM's order book was down on a record high set a
year ago and that he had cut expectations for the coming year because of the
general uncertainty in the market, but, nevertheless, the company expected
group revenue for 2009 to be at least in line with market expectations of
about $460 million (£320 million).
Indeed, ARM has taken advantage of the downturn to carry out some
“optimisation”, cutting 3 per cent of the workforce. A salary freeze is in
place, including that of the chief executive.
Mr East, 47, a chartered engineer and fellow of the Royal Academy of
Engineering, joined the company from Texas Instruments in 1994 to set up an
ARM consulting business.
He was appointed to the board as chief operating officer in 2000 and became
chief executive in October 2001, just as the
dot-com boom died. Since then, he has overseen a steady rise in the company's
fortunes. ARM's billionth chip was shipped in 2002 and its five billionth
chip in 2007.
The ten billion landmark was hit last year, a rate of acceleration that Mr
East said he expected to continue so that the 20 billionth would be produced
in early 2011.
Mr East said the second half of 2009 could see a return of activity in the
semiconductor sector. The industry had “stamped on the brakes hard”, cutting
inventory all the way down the supply chain.
“Typically, this takes two or three quarters to flush through, and that is
where we will be in the third quarter of this year. We will get to the level
where people have to start ordering again, at whatever lower level of demand
it is.”
He added that ARM worked at least five or six years' ahead, looking to predict
where the innovations in processors would be required. Companies still
needed to develop new products for when the market returned.
A few years ago ARM placed some bets on a rise in demand for graphics chips,
producing blueprints for the sort of processors that are now integral to the
surge in demand for smartphones that use complex graphics to deliver a
better user interface.
In 2006, ARM acquired Falanx Microsystems AS, a Norwegian graphics processor
company, an investment that is paying off. Smartphones, such as the iPhone,
are a lucrative market for ARM, which typically makes six times as much in
royalties per smartphone than for ordinary phones because they require more
processors.
The good news for ARM is that smartphones are practically the only electronics
products that are predicted to defy the collapse in consumer demand.
According to a report published by Gartner in December, smartphone sales are
expected to grow between 30 per cent 35 per cent this year, boosted by the
growing number of touchscreen devices. The Palm Pre, the most eagerly
awaited smartphone launch of the year, will contain ARM processors.
Mr East said that ARM was now looking at video processors as another growth
area. The company acquired Logipard, a Swedish video processor and imaging
company, in December and is hoping to use the company's expertise to remove
some of the research and development risk in the video chip market.
Dedicated processors were needed to make video on mobile phones more
efficient, he said. Digital televisions were also becoming more complex,
with connections to the internet built in, which required more sophisticated
processors.
He noted that experimentation was the key to developing good chip designs.
“The outside world only ever sees the things that work,” he said. “The
reality is that in any engineering company you are designing things and you
never quite know if they are going to work until they do.”
ARM has no plans to get into the manufacture or sale of semiconductor chips.
Mr East said: “The unique thing about ARM is the combination of the business
model and the technology. We have the lowest-power microprocessors there are
and, rather than trying to be an Intel and rule the world, we share our
revenue. We believe it is better to have a small slice of a big pie.”
Q&A
Q. If you could change one thing in the financial and commercial
environment, what would it be?
A. Slow down the process in the city to give people time to think & check
not act on gossip
Q. Who, or what, is your mentor?
A. I have no one role model as an inspiration. My primary thought & ideas
confidant is my wife, followed by a couple of close colleagues
Q. Does money motivate you?
A. It helps a lot but is not the primary motivator, which is simply conquering
things, so in the workplace it's making ARM the unassailable winner
Q. What gadget must you have?
A. I'd like to say my fountain pen, but I assume you mean electronic gadget in
which case my iPod.
Q. What does leadership mean to you?
A. Real satisfaction come from achieving so much more from the team than the
sum of the parts and knowing one's personal drive and influence makes it
happen
Q. How do you relax?
A. Being outside, building things, improving things, skiing, sailing, cycling,
or if forced to be inside: playing church organs or being with my family
CV
Age: 47
Education: Monmouth School, Oxford University (Engineering); Cranfield
School of Management, MBA.
Other qualifications: Chartered engineer, FIEE, a Companion of the
Chartered Management Institute and Fellow of the Royal Academy of
Engineering.
Joined ARM Holdings in 1994 from Texas Instruments to set up ARM's consulting
business.
In October 2000 he was appointed to the board as Chief Operating Officer.
In October 2001 was appointed Chief Executive Officer.
