INVESTOR CORNER: ARM TechCon- Key Takeaways

Moor Insights & Strategy “Investor Corner” is content specifically written for the professional investment community.  This analysis was written by Steven Eliscu as part of Investor Corner, L-sq Advisors, October 16, 2013.  See important disclosures and disclaimers below.

ARM new product announcements

  • Mali 720 new generation graphics – well complements the Cortex A12 announced earlier this year; together, these could provide a strong combination for future lower-end smartphones
  • ARM v8-R instruction set architecture (ISA) – new ISA for real-time applications (e.g. car braking/safety systems); there is not a big impact for the market any time soon, but it represents another incremental improvement for ARM (v8-R is still 32-bit but it gains the advantages of the architectural improvements embedded in the v8 ISA, including hardware-accelerated virtualization support)

Internet of Things (think of IoT as billions of interconnected end-point chips comprised of a microcontroller + radio + sensors+ enhanced security) – a big theme of the show – ARM believes it can dominate this market as the massive ecosystem for mobile is leveraged by IoT applications. While Intel could be a longer-term threat with its announced “integrated computing” initiative for IoT based on its 32nm Quark processors, Intel will be mainly intersecting the lower-end of ARM’s Cortex A-class processors, which are in a performance class above microcontrollers.

big.LITTLE – the evolution of this technology is important as its licensees defend against Intel’s push in mobile. The big.LITTLE technology is no longer about “lighting up” either 4 small cores or 4 big cores, but rather it provides an effective way to match the number and type of activated cores to the application requirements (the technical term being heterogeneous multiprocessing or HMP). Thus, going forward, we are likely to see ARM-based implementations with an asymmetric number of small and big cores and even more than two types of cores (e.g. the use of a GPU as a compute core). For existing mobile applications, this may limit Intel’s ability to gain a material advantage, even with a process technology lead, as the ARM vendors partly offset those advantages through a diversity of HMP implementations.

Intel to fab 64-bit ARM (via Altera) – this announcement should not be a surprise as: 1) the FPGA vendors have highlighted that the integration of processors is a key element of future growth and 2) Altera would not have done the deal with Intel if it would not agree to being able to embed its processor-of-choice IP. The ability for Altera/Intel to implement a Cortex-A53 from scratch (as there is no hardened IP block from ARM for Intel) does at least indicate Intel’s cell library and design methodology for foundry customers has become increasingly mature; this bodes positively for Intel to be a competitive leading-edge foundry.

Servers – the incursion from ARM still doesn’t start until 2015, but the threat to Intel appears increasingly credible. What is becoming obvious, especially with Broadcom having announced its 16nm ARM processor chip in mid-October at the Linley Processor Conference is that the diversity of ARM solutions specifically targeted at the datacenter will make it difficult for Intel to plug all of the holes to defend its share and/or margin position. Additionally, there is the possible emergence of a third way where the owners of the mega datacenters (Google, Baidu, Microsoft) could make their own server silicon that limits the growth of the merchant server processor market in the second half of the decade (where merchant ARM silicon may be simply a way-station to captive solutions). A future article will dive deeper into the financial implications.

DISCLOSURES

I do not own a stock position in any company whose stock is mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. L-sq Advisors is a consulting firm that may have in the past, present or future solicited and/or generated consulting services from any company mentioned in this article.

BIOGRAPHY

Steven Eliscu is Principal at L-sq Advisors.  He brings a unique combination of Equity Research experience – 9 years at UBS, a leading global platform, as a Semiconductor Analyst – along with more than 10 years of senior Marketing and Business Development roles in the technology industry, including 11 years of rising through the ranks at Integrated Device Technology. With this experience, he intimately understands the basis for valuation from the eyes of the financial markets through the lens of his framework for technology value creation. He has a firm grasp of key technology trends (with 3 patents to his name) and the competitive forces driving the tech industry, which have provided the proper context for his understanding of individual companies and ultimately how each should be valued. He developed the basis for his framework based on his experience as an Analyst, and subsequently refined it and brought it to market as the founding Principal of L-sq Advisors.

DISCLAIMERS: 

You understand that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. You further understand that none of the bloggers, information providers, App providers, or their affiliates are advising you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent that any of the content published on the Site may be deemed to be investment advice or recommendations in connection with a particular security, such information is impersonal and not tailored to the investment needs of any specific person. You understand that an investment in any security is subject to a number of risks, and that discussions of any security published on the Site will not contain a list or description of relevant risk factors. In addition, please note that some of the stocks about which content is published on the Site have a low market capitalization and/or insufficient public float. Such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information. Blogs, postings or content on the Site which may or may not be deemed by you to be recommendations may have an effect on their stock prices.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other Moor Insights & Strategy blogs or products, and that opinions in one blog or product may be different from those in another blog or product. You understand and agree that, although we require all employees to disclose every stock in which they, their immediate family, or any entity under their control, have a personal interest, if such stock is mentioned in a blog, post, or content which they write, non-employees, including outside bloggers or other content contributors or their affiliates may write about securities in which they or their firms have a position, and that they may trade for their own account, and that they may or may not be subject to a disclosure policy. In cases where Moor Insights & Strategy becomes aware that one of its employees has violated his or her disclosure obligation, Moor Insights & Strategy will take appropriate action. In addition, outside bloggers or content contributors may be subject to certain restrictions on trading for their own account. However, you understand and agree that at the time of any transaction that you make, one or more bloggers or content contributors or their affiliates may have a position in the securities written about.

You understand that performance data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that such calculations are not guaranteed by these sources, the information providers, or any other person or entity, and may not be complete.

From time to time, reference may be made on our Site to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or opinion, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

All content on the Site is presented only as of the date published or indicated, and may be superseded by subsequent market events or for other reasons. In addition, you are responsible for setting the cache settings on your browser to ensure you are receiving the most recent data.

The Site is not intended to provide tax, legal, insurance or investment advice, and nothing on the Site should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by Moor Insights & Strategy or any third party. You alone are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation.