Arm's prospectus reveals competitive risks from RISC-V, and giants such as Google, Samsung, Qualcomm
With British chip designer Arm's listing on Nasdaq on September 14th, investors are weighing the potential pros and cons of investing in the company. In Arm's initial public offering (IPO) prospectus, several potential risks are highlighted, including business development and geopolitical risks. However, as the listing approaches, one potential threat has garnered attention.
This significant threat is the introduction of a chip design architecture called RISC-V by Arm's competitors, which has gained support from some of Arm's key clients. While analysts from market research firms suggest that this may not pose a direct threat to Arm, Arm has issued a warning that if this architecture continues to gain customer attention, it could potentially impact the company's competitive position.
Arm's Instruction Set Architecture (ISA) is the foundation blueprint used by many technology companies (including Apple, Qualcomm, etc.) in their processors. These companies pay Arm licensing fees for intellectual property rights. Additionally, when these chips are manufactured and applied to end devices, Arm can also obtain royalties, typically based on a certain percentage of mobile phone sales. Today, 99% of global smartphones use processors based on Arm designs.
The main difference between the RISC-V architecture and the ISA architecture lies in the fact that RISC-V is open-source, meaning it can be used free of charge. In Arm's IPO prospectus, the company explicitly states, "If the RISC-V architecture continues to grow and gain market support, our customers may choose to use this free open-source architecture instead of our products."
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In recent years, RISC-V has gained support from some of the world's largest technology companies, many of which are also Arm's clients. Companies such as Google, Samsung, Qualcomm, and Nvidia formed a consortium in 2020 aimed at developing RISC-V-based technology.
Arm warns that if this architecture is successfully developed, it could become a viable alternative. The support for RISC-V increased after Nvidia proposed acquiring Arm for $40 billion. Some are concerned that such an acquisition may have adverse effects on Nvidia's competitors.
The prevailing consensus is that RISC-V does not pose a significant threat to Arm because the technology is currently far less mature than Arm. The Director of Counterpoint Research stated, "The problem with RISC-V is it's less mature. It doesn't have the same level of support for more advanced designs."
Arm's main success lies in its extensive base of major technology company clients, allowing the company to build an "ecosystem" consisting of companies reliant on its technology, which is an advantage that RISC-V lacks. However, some worry that certain manufacturers may view RISC-V as a cheaper and more attractive alternative, particularly in cases where Arm increases licensing fees.
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