Wednesday, May 18, 2011

ARM: Intel's 3D chip has complexities

British chip designer ARM said rival Intel's move into 3Dchip technology was a "fantastic marketing coup" but it would not affect plans by ARM's partners to manufacture smaller, more powerful chips.

"Intel's announcement of 3D structures at 20 nanometer was an interesting announcement but from our point of view nothing really more than that," Chief Executive Warren East said.

ARM's technology dominates the mobile computing arena, helped by its leading power efficiency and relatively low cost. Its processors power Apple's iPhone and iPad and nearly all other mobile phones and tablets.

The British company licenses its technology to chip-makers such as Samsung and Texas Instruments and gets a royalty payment on every chip shipped.

Intel has so far failed to crack the smartphone market, but the significant improvement in power efficiency in its latest 22 nanometer technology, which will eventually extend to its "Atom" mobile processors, is its best hope to date.
"(Other) manufacturers will deploy (3D technology), but probably not before they absolutely need to it because it comes with complexities," East said.

"What matters is, if I'm going to make a real chip, what performance can I get at what power consumption?," he said, adding that 3D technology was not necessarily the answer.

East said Cambridge-based ARM would continue to grow faster than the market, due to its strong position in fast-selling devices like smartphones, plus the increasing use of its designs in mundane microcontrollers in devices ranging from toys to air conditioners.

Japan impact
East said the sale of electronic devices was largely immune to economical and political upheaval, but March's earthquake in Japan could hit supply chains, although only one --
Renesas Electronics -- of its 250 partners had been seriously affected.

"In Japan one of our licensees is most seriously affected but ... they don't ship a huge proportion of ARM devices," he said.

"Our best analysis is single digit percentages of our royalties," he said of the likely overall impact of the disaster, noting that royalties make up just over 50 per cent of total revenue.

"We would expect to see some impact probably as early as Q3 royalties, which would be Q2 shipments."

ARM's fastest, most powerful Cortex family dual-core processors, which carry higher royalty rates, are already being shipped, and processors that can power PCs and servers are in development by partners such as Marvell and Nvidia.

Addressing a key concern for investors, East said he expected ARM would be able to maintain premium royalty rates when licensing Cortex processors more widely, helping it accelerate growth in royalty revenue.

"It would be easier when we are licensing it more broadly because the precedent will have been set: 'if you want to buy a Cortex A9, well this is what the price is,'" he said.

The newest chip designs command royalty rates edging towards 2 per cent against the 1 per cent rate on its older chips.

Shares in ARM command a stellar rating of more than 50 times next year's forecast earnings because investors eye increasing royalty revenues as chipmakers buy in ARM's technology rather than design chips from scratch.

East said the strength of licence sales, both for its core processor technology and increasingly for graphics, meant growth in royalties was secure.

Underscoring ARM's dominance in mobile computing, Microsoft, previously faithful to Intel's x86 chip architecture, said in January it would configure its Windows software for ARM chips, in recognition that tablets were eroding growth in its PC stronghold.

East said Microsoft was driving the development of the software but he said the US company's comment that it would take somewhere between 24 and 36 months before it was widespread availability sounded "very plausible".