Chip designer Arm makes its own advanced prototype semiconductor

Chip designer Arm is building its own semiconductor to showcase the capabilities of its products, as the SoftBank-owned group seeks to attract new customers and fuel growth following a blockbuster IPO later this year.

Arm will team up with manufacturing partners to develop the new semiconductor, according to people briefed on the move who describe it as the most advanced chipmaking effort the Cambridge-headquartered group has ever embarked upon.

The effort comes just as SoftBank seeks to drive up Arm’s profits and attract investors to a planned listing on New York’s Nasdaq exchange.

The company traditionally sells its blueprint designs to chip manufacturers, rather than getting involved directly in the development and production of semiconductors itself. The hope is that the prototype will allow it to demonstrate the power and capabilities of its designs to the wider market.

Arm has previously built some test chips with partners including Samsung and Taiwan Semiconductor Manufacturing Co, largely aimed at enabling software developers to gain familiarity with new products.

However, multiple industry executives told the FT that its newest chip — on which it started work in the past six months — is “more advanced’ than ever before. Arm has also formed a bigger team that will execute the effort and is targeting the product at chip manufacturers more than software developers, they said.

The company has built a new “solutions engineering” team that will lead the development of these prototype chips for mobile devices, laptops and other electronics, according to people briefed on the move.

The solutions engineering arm is led by chip industry veteran Kevork Kechichian, who joined Arm’s top executive team in February. He has held previous roles at chipmakers NXP Semiconductors and Qualcomm, overseeing the development of the San Diego-based company’s flagship Snapdragon chip.

The team will also expand on Arm’s existing efforts to enhance the performance and security of designs, as well as bolster developer access to its products.

Rumblings about Arm’s chipmaking moves have stoked fears in the semiconductor industry that if it makes a good enough chip, it could seek to sell it in the future and thereby become a competitor to some of its biggest customers, such as MediaTek or Qualcomm.

People close to Arm insist there are no plans to sell or license the product and that it is only working on a prototype. Arm declined to comment.

Any move to build chips for wider commercial sale would undermine Arm’s position as the “Switzerland” of the semiconductor industry, selling designs to almost all mobile device chipmakers while not directly competing with them.

Its neutral model has led to its products being found in more than 95 per cent of smartphones, with customers including Qualcomm, MediaTek and Apple.

“Working on intellectual property is one thing but really designing and working with production partners to turn those efforts into physical chips is a totally different arena. It’s more capital intensive,” a former Arm executive with knowledge of the effort told the FT. “At some point in the future [Arm] will definitely need returns to justify that massive investment.”

SoftBank’s push for growth has led Arm to seek out changes to its commercial practices. The chip designer has sought to increase prices and overhaul its business model by charging royalties to device-makers rather than some of its chipmaker customers, the FT reported last month.

Arm acknowledged in its annual report published last week that a principal risk to its business was the “significant concentration” in its customer base. Arm’s top 20 customers accounted for 86 per cent of revenues last year, so “the loss of a small number of key customers could significantly impact the group’s growth”.

That warning came with Arm currently embroiled in a bitter legal dispute with Qualcomm, one of its largest customers, after it accused the chipmaker of using some of its designs without having procured the necessary licence.

There are also widespread concerns in the industry that in-house chips developed by Apple, Arm’s largest customer, are outperforming those made by competitors such as Qualcomm and MediaTek.

“Google thought it could demonstrate the world’s best Android OS so it built the Pixel phone. Microsoft thought it was the master of Windows so it built Surface laptops. So, naturally, Arm thinks it can build best-in-class Arm-based chips, better than chip developers out there,” said Brady Wang, a semiconductor analyst with Counterpoint Research.

But making chips is even more challenging than building devices, Wang said. “It will need generation after generation of development efforts.”

Additional reporting by Christian Davies in Seoul