New Chips Muscle In On Intel Turf

"A new generation of chips using Arm Ltd. technology is heaping pressure on Intel Corp. as the British chip-design specialist prepares for what could be one of the year's highest-profile public listings.

Arm-based chips have been winning market share in PCs and have become a more formidable rival in the increasingly important data-center market where Intel has long been the undisputed leader. Amazon.com Inc. has embraced the technology for its self-made server chips, and Microsoft Corp. and Google are working on processors using building blocks licensed from Arm, according to people familiar with their efforts.

The Cambridge, England, company demonstrated some of its popularity this past week when Apple Inc. expanded its bet on Arm-based chips. On Tuesday, Apple, an early adopter of Arm, introduced two new versions of its in-house-designed Arm chips for MacBooks, leaving Intel -- long Apple's preferred supplier for core processors -- furnishing only those for its highest-end desktop computers.

Intel, which reports quarterly results Thursday, is expected to post a 23% decline in revenue in its PC-focused business, according to analysts surveyed by FactSet. Intel's server business sales are forecast to retreat 40% from the year-prior, reflecting a weakening economy and loss of market share to its rival Advanced Micro Devices Inc. and to Arm-based chips.

The inroads Arm-based chips have made recently with cloud-computing operators have become particularly meaningful because the data centers operated by Amazon, Microsoft, Google and others consume a vast number of chips. Arm earns royalty payments on every chip made or sold using its design.

"It's a massive opportunity for us," Arm Chief Executive Rene Haas said.

Arm, which is owned by Japan's SoftBank Group Corp., is gearing up for an initial public offering this year. The company's IPO plans have shifted to later in the year because of market turmoil that has depressed appetite for new listings, an Arm official said last year. Arm also is still deciding where to list its shares, with political pressure in the U.K. to pick London.

Arm made its name devising the basic building blocks of circuits at the heart of smartphones, aiming to minimize power consumption to extend battery life. Arm-based chips are the digital brains in more than 95% of smartphones, including all Apple iPhones.

Because Arm makes money largely by licensing chip building blocks rather than making the devices, it generates relatively modest sales figures given its reach. It generated $2.7 billion in revenue in 2021 -- up by more than a third from the prior year, but still only about 3% the size of Intel.

It has transplanted its smartphone success into other markets. Processors using its chip format now feature in more than 10% of all PCs sold as of the third quarter of last year, according to Mercury Research. While global shipments in laptops are expected to decline this year by a high single-digit percentage, those for Arm-based laptops could grow, according to Counterpoint Research.

The share of processors shipped to cloud-computing companies that aren't based on Intel's chip architecture -- largely reflecting Arm's use -- reached 16% last year and is predicted to rise to 53% in 2026, according to Canalys, a research firm. Estimates of Arm-based chips' market share vary widely, however, because in-house applications like those developed by Amazon aren't easy to track. Arm chips are now also found in virtual-reality headsets and autonomous vehicles.

Intel is fighting back. This month, it released a long-delayed new generation of its server chips promising high performance and power-saving capabilities. "We know what we need to do in order to be the preferred supplier for these products, and we've been working hard to put that foundation back together and ensure that we do win," said Lisa Spelman, an Intel vice president in charge of its server processor products.

Arm-based server chips are benefiting from a focus at cloud companies on environmental stewardship. The three biggest American cloud providers are pledging to cut their carbon footprints by 2030 or earlier.

Each data center can house hundreds of thousands of servers and require as much power to run a day as about 30,000 residential households. Having server farms that consume less power is critical to meeting those targets, officials from the cloud providers have said.

"Power is going to be a problem for us and for everybody," said Amazon's Dave Brown, a vice president at Amazon who handles the company's cloud-computing server farms and represents one of the single largest chip customers.

Amazon's latest Graviton chips -- based on Arm and released late last year -- are up to 60% more efficient than its other CPUs, he said. Those other CPUs consist of Intel and AMD chips.

Intel wouldn't respond directly to Amazon's performance claims, but CEO Pat Gelsinger suggested last year that a generation of its server chips set to debut in 2024 would outclass Arm alternatives on key efficiency and performance metrics.

Arm's success made it the target of multiple high-value deals. SoftBank in 2016 splashed out $32 billion, which, Arm executives have said, freed them to boost research spending by 10% to 15% and sharpen the company's attack on rivals.

Then Nvidia Corp., America's largest chip company by value, tried to acquire Arm from SoftBank in 2020 for $40 billion. Many customers objected that Arm, which has a reputation as the Switzerland of tech, would be owned by a rival and pressured regulators to block the transaction. Nvidia and SoftBank called off the deal a year ago." [1]

1. New Chips Muscle In On Intel Turf
Fitch, Asa.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 24 Jan 2023: B.1.