But the company that in many ways really powers the mobile device revolution isn't Qualcomm or Intel. It isn't even based in Silicon Valley. No, when it comes to the mobile revolution, the real powerhouse is Cambridge, U.K.-based ARM Holdings.
ARM doesn't actually make devices; the company has an IP licensing model. What they do, rather, is license microprocessor designs that have come to play a dominant role in both tablets and smartphones. Apple's phones run on a variant of the ARM standard, for instance; so do Samsung's. ARM's approach to the market is basically to license its designs to all comers - and to let the chip makers battle it out in the marketplace. In an interview this week in Las Vegas, ARM CEO Warren East made the case that the company has before it a path to solid growth for years to come, as ARM-based chips both ride the ongoing expansion of the tablet and smartphone revolution and move into lucrative new markets like televisions, servers and networks.
- While the television market has been shrinking, East notes that ARM is "exposed to the bits of the market that are growing," in particular large screens that include "smart TV" functionality that allows consumers to navigate linear television, over-the-top video from the Internet, and various other content sources in a single user interface. He notes that Smart TVs as a percentage of televisions sold continues to grow; and he says that ARM is gaining share in the smart TV category. He also notes that the spread of smart TVs create demand for more content from the cloud - some of which sits on servers running ARM-based processors.
- East says the company is taking dead aim at the market for server processors. There's plenty of room for gains in that market, where ARM at this point has no share at all. East says the interest among servers vendors in using ARM-based processors boils down to logistics: he says they require less space and use less power than conventional X86-based processors. East notes that by some estimates IT equipment now suck down 10% of the world electric power already; he also notes that there are estimates that in the next few years that the amount of data creates could increase 100x, or maybe 1000x. Even at 10x, he notes, we're going to run out of power at the current consumption rates. "They are going to switch to ARM because it is all about the power," he says. "The digital world is not going to become a reality unless servers and network infrastructure is designed in a different way....ARM is a tool in the toolbox for making this stuff more sustainable."
- In network architectures, East says, we're about a year away from seeing the debut of ARM-based server processors. But he says that the story here is much the same as it is in servers. But he notes that companies like Cavium, Applied Micro Circuits, Texas Instruments, LSI and Fairchild have all talked publicly about using ARM processors in networking infrastructure.
- The company also sees a growing opportunity in microcontrollers and "the Internet of things."
Now, I would point out here that ARM isn't going to get a free pass to simply roll into market after market unopposed. Intel, for instance, is making a fresh push into the mobile device processor market, though so far the company has made only limited progress.
East's not writing Intel off, but he also doubts that Intel will ever become a huge player in smartphone chips.
"We do anticipate they will get some share, but not massive share," he says. "And why should they? We have 15 or so licensees shipping into the market now. There's an ecosystem and ARM platform around those companies. Intel's chip is a little more applicable to mobile devices than previous generations, and it can become one of the 15-20 semi companies in that space. They are a very capable company with lots of market money to spend. So I don't see any reason why they shouldn't achieve 5% share."
Couldn't they muscle their way to more? East says it is unlikely. "Arithmetic says they win about 5%," he writes. "They have lots of marketing money and they have capable technology, so maybe then they 10%. That still leaves us with 90%" And we're looking to the server market, where Intel has virtually 100% share now."
As for the outlook for tablets, East says that the ARM-based Microsoft Surface tablet is "not a massive opportunity," but he says the launch of the ARM version of Windows 8 - called Windows RT - has shown that their OS can run on an ARM architecture. "Microsoft's record of delivering killer products on the the first try is not that good," he notes. "But we're confident that Microsoft will move on from there and make it better." He also notes that there are some impressive Win RT tablets from other vendors, including Lenovo and Acer. And he points out that there are also non-Microsoft products in the space, like the Google Chromebook, the leading clam-shell style notebook on Amazon.com.
East says the company continues to see royalty growth going forward in the mid-teens range, driven by the company's four target markets: smartphones/tables/laptops; microcontrollers; servers; and network infrastructure.
In microcontrollers, which serve as the computing brain for a wide variety of devices, the company continues to expand share. East says they were about 15% of sales in 2011; projections were for 20% in 2012, and he thinks the total could reach 25% next year.
And then there's the Internet of Things - or as Cisco likes to say, The Internet of Everything. As the world moves toward massive proliferation of sensor-based devices, ARM's low-cost, low-power approach seems like a logical solution. East sees ARM chips showing up in everything from heating systems and lighting systems to medical devices.
East says he goes to CES in part looking for confirmation of current trends, waiting for "an almost intangible feel" on the state of device business. What's clear, he says, is that there is palpably more interest now in the Internet of things, though the trend is just starting. And he is with the consensus in thinking this will be a big year for mobile devices. Which should mean a big year, as well, for ARM and Warren East.
