Intel Corporation, ARM Holdings plc Battle Could Get Even Tougher Now

Intel Corporation, ARM Holdings plc Battle Could Get Even Tougher Now
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Intel’s competition with ARM has always posed problems for the chip giant, which has failed to crack the British company’s lock on smartphone chip technology. This task is going to get even tougher now as Japan-based SoftBank Group Corp has decided to buy ARM for $32 billion and has pledged to invest more in the company, reports The Wall Street Journal.

SoftBank buying ARM: a problem for Intel

On Monday, SoftBank Group announced that it is planning to buy ARM for $32 billion and help the company double its workforce over five years. The money SoftBank has pledged to invest could be used for acquisitions and internal technology development to strengthen the chip designer’s sway in new markets likedata center equipment (a stronghold of Intel).

Linley Gwennap, an analyst at the Linley Group, said, “If you are Intel, that potentially makes ARM even more potent as a competitor.”

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In the past, there have been rumors that the chip giant might try to buy ARM, given the tough competition between them. According to analysts, peculiarities that make ARM’s business model so troublesome for Intel could also make it unlikely that it would consider topping SoftBank’s bid. Analysts and industry executives say that buying ARM would place a major company like Intel in a fragile position of either selling designs to their direct competitors or discontinuing such dealings.

Will SoftBank raise ARM’s royalty rates?

Intel looks like a very powerful company on the surface. The company, which invented the microprocessor, supplies the chips to drive the vast majority of server systems and personal computers. In addition, it manufactures chips in its own factories and sells hundreds of millions of chips each year. In 2015, it posted revenue of $55.4 billion.

In contrast, ARM developed a popular strain of processor technology that it licenses to other companies for a fee. ARM charges royalties on each chip the other companies sell. Some companies, like Apple, pay for the right to design original chips based on ARM technology. Other companies buy complete chip blueprints from ARM to use without modification or combined with other technology of their own.

Intel’s strategy has merits and strengths, but, “ARM has a totally different business model and different kind of strengths,” said SoftBank CEO Masayoshi Son on Monday.

Now an important question about the SoftBank deal is whether or not it will try to increase ARM’s royalty rates. It may do so as new chip designs are introduced, said Patrick Moorhead, an analyst at Moor Insights & Strategy. But it will likely tread carefully to avoid pushing customers to other technologies.

“You don’t want to make Apple mad,” Moorhead concluded.

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