British Chip Designer Arm Proposes To Charge More For Chip Designs To Boost Topline Ahead Of IPO

  • British chip designer Arm Ltd is seeking to raise prices for its chip designs. 
  • The Softbank Group Corp SFTBF SFTBY-owned group aims to boost revenues ahead of a hotly anticipated U.S. initial public offering in 2023, Financial Times reports.
  • Arm has recently informed several of its biggest customers of a shift to its business model.
  • Also Read: SVB Financial Collapse Triggers Experts Fear Of Softbank Buyback, Alibaba Mark Down, Arm IPO Valuation Cut
  • Arm planned to stop charging chipmakers royalties for using its designs based on a chip's value and instead charge device makers based on the device's value to boost revenue.
  • According to the new business model, Arm will set royalties according to the average selling price (ASP) of mobile devices rather than that of the chips. The changes will mainly involve Arm's most prominent "Cortex-A" designs, essential for developing smartphone processors.
  • SoftBank CEO Masayoshi Son strives to drive up Arm's profits and attract investors to its impending return to the public markets.
  • Reportedly SoftBank is testing the market value of Arm's monopoly per an ex-employee.
  • SoftBank aimed to start pushing through the pricing shake-up by 2024.
  • Arm shared its pricing plans with Media Tek Inc MDTKFUnisocQualcomm Inc QCOM, and multiple Chinese smartphone makers, including Xiaomi Corp XIACF XIACY and Oppo.
  • Qualcomm, Nokia Corp NOK, and Ericsson ERIC all use a similar model for their patents.
  • The average price for a smartphone computing chip ranges between $6 - $40, while the average smartphone sold for $335 in 2022.
  • Arm charges royalties of about 1% - 2% of the value of each chip sold based on its designs, according to Sravan Kundojjala, an analyst at TechInsights.
  • Therefore, Arm would set its new pricing to increase overall earnings significantly.
  • Price Action: SFTBY shares closed lower by 0.11% at $18.62 on Wednesday.
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