ARM boosted by strong iPhone sales but still hankers after servers

The UK chip designer has reported rising revenues on the back of growing sales of phones and tablets, while hoping it can overcome setbacks in the server market.
Written by Nick Heath, Contributor

UK chip designer ARM is profiting from growing phones and tablet sales, and believes it can overcome setbacks in its attempts to crack the server market.

With ARM-based chips inside Apple's hugely popular iPhone and iPad lines, there has been a rapid rise in the number of ARM-based chips shipped. The figure grew by almost one third, 31 percent, year-on-year during the first quarter of 2015.

ARM principally makes money by licensing its chip designs to third parties and collecting royalties when those processors ship.

The spike in shipments of ARM-based silicon pushed up processor royalties, with revenues up 31 percent to $167.5m during the quarter compared to the year before. Overall ARM's Q1 revenues grew 14 percent year-on-year to $348.2m.

ARM is benefiting not only from quantities of chips shipped, but also from the higher royalty rates it receives for chips that use its eighth-generation ARM architecture, such as that found in the latest models of the iPhone and iPad Air. By the end of the year, the firm expects half of the ARM-based application processors shipped will use its v8 architecture. The same premium applies to ARM's designs for its Mali graphics processor, which is also shipping in greater numbers inside tablets and smartphones.

"We're pretty happy in general, there's good traction with the customers and good traction in terms of the volume," ARM's president of product groups Pete Hutton said.

However, while royalties were up, returns from firms licensing ARM's processor designs fell, with revenues down two percent to $109.3m during the quarter. Hutton attributed the fall to a 30 percent hike in licensing revenues in the first quarter of 2014 and said that Q1 2015 "was still our fourth largest licensing quarter on record".

During the quarter ARM also saw growth in the number of processor designs licensed for use with Internet of Things devices, with 16 licences signed for its low-power Cortex-M class chips, bringing the total number of licenses sold to 300.

ARM's progress in getting its chips into servers isn't covered in any detail in its results. For several years ARM has talked up its entry into the server market, relying on partners such as AMD, Applied Micro, and Cavium to make processors based on its 64-bit v8 architecture.

However, despite Applied Micro chips being available inside HP's Moonshot servers, ARM and its partners haven't made significant gains in the Intel-dominated market.

Deployments of ARM-based servers remain relatively low at present as it's still early days, Hutton said.

"There's test deployments here and there and a number of people starting to launch cloud-type services based around it but the volumes are small quite now.

"Last year was basically 'get some of the basic software done, get some of the hardware out'. Now we've got the hardware out, it's about getting it out into volume shipments."

There have also been setbacks, with ARM-based server pioneer Calxeda shutting up shop and AMD recently announcing the release of its first ARM-based Opteron processor will be delayed.

Intel is also making moves to fend off ARM, with the chip giant expected to up the core count of its low-power system-on-a-chip server processors to as high as 16 when its Atom-based Denverton processor launches this year, as well as moving to its more efficient Airmont-based designs. The firm has also introduced a new line of its Xeon chips aimed at the low end of the server market, with its new Xeon D processors.

Yet despite these challenges, Hutton remains optimistic that ARM and its partners can hit the chip designer's ambition for ARM-based chips to account for between five and 10 percent of the server market by next year.

"Yes [we will hit it], but it's a lot of work. It's not so much work on the hardware side, we have silicon. The work is trying to figure out the applications that are going to deploy widely and then get the software.

"It can ramp fast. We went from nothing to five percent of the enterprise networking market based on one design. It could be that fast."

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