Apple Supplier Arm to Hike Chip Prices by 2024: Report

Arm is planning to increase prices for its chip designs ahead of a planned initial public offering in New York this year, according to a report from the Financial Times.

The SoftBank-owned group’s main line of business is licensing chip designs to customers. Arm owns the rights to the semiconductors that power more than 95% of all smartphones today.

According to industry executives and former employees, Arm has informed some of its biggest customers of a major shift in its business model that will see the supplier charge royalties for chip designs based on the value of the device they are intended for instead of the chip itself.

Arm currently charges its customers a licence fee for access to its designs, plus a recurring royalty for each chip shipped that, per TechInsights, amounts to 1-2% of the value of the chip. On average, smartphone chips from Qualcomm and MediaTek cost $40 and $17, respectively. The change could see customers pay Arm several times more for the same chips.

“Arm is going to customers and saying ‘We would like to get paid more money for broadly the same thing’,” an ex-senior employee at Arm told the Financial Times. “What SoftBank is doing at the moment is testing the market value of the monopoly that Arm has.”

The planned overhaul of Arm’s sales model comes as SoftBank CEO Masayoshi Son tries to rally profits and garner investor attention before the tech giant returns to the public market.

SoftBank acquired Arm for £24.3bn in 2016. Before it hatched plans for an IPO, SoftBank wanted to sell Arm to fellow silicon giant and customer Nvidia in a massive deal worth $40 billion. However, Nvidia abandoned the acquisition after facing multiple regulatory challenges.

Arm has reportedly already informed MediaTek, Unisoc, Qualcomm, and multiple Chinese smartphone makers — including Xiaomi and Oppo — of its plans to hike chip blueprint prices and royalties, said people familiar with the talks.

“The [royalty] amount will be at least several times higher than what Arm gets now,” said an executive from a leading Chinese smartphone maker which has so far pushed back against the proposed pricing changes. “We are told that they hope such changes could start from 2024.”

One of Arm’s largest customers is Apple, which licenses the group’s technology for all of its custom “Apple Silicon” chips. Both Apple’s A-series chips for iPhones and M-series chips for Macs (and more), while designed in-house by the company, use licensed Arm technology.

However, Apple is both a chipmaker and a device maker, and the company has a special licensing and royalty agreement with Arm. The iPhone maker is not involved in discussions about the change to Arm’s business model, according to sources.

Apple is expected to debut devices with an all-new M3 chip, based on a 3nm process — the company’s most advanced yet, later this year.