Royalties: NASDAQ stock Apple pays Arm the least of all chip customers

• Almost all smartphones and tablets have licensed ARM processors
• Apple is one of Arm’s largest and most important customers
• iGroup pays the least per chip used in its devices

The British chip architect Arm has been part of Softbank since 2016. The Japanese holding company paid a sum of 32 billion US dollars to take over the license provider of microprocessors.

Arm does not produce its own chips, but rather grants licenses to semiconductor development companies and semiconductor manufacturers – customers in turn pay royalties to Arm for the use of the chip architecture. Thanks to the large number of licensees and the significant advantages of the architecture, Arm implementations are the most widely used architecture in the embedded sector. Almost all smartphones and tablets currently available on the market have licensed ARM processors. Apple, among others, develops the processors for its iPhones and Mac computers based on Arm’s chip architectures. QUALCOMM, whose chips are used for many Android smartphones, also uses it.

Apple pays small fees

As The Information reports, Arm has played an important role in helping Apple’s devices outperform rivals. However, the fees that iKonzern pays are unusually low and so Softbank CEO Masayoshi Son complained about Apple in a meeting with a group of Arm executives in 2017.

Son explained at the time that Apple was paying more for the piece of plastic that protects the screens of new iPhones than it was for licensing Arm’s chip architecture, The Information reported, citing a person with direct knowledge of the meeting. Apple’s current licensing agreement with Arm was signed in September and “extends beyond 2040,” according to MacRumors. However, Arm is said to have repeatedly tried to renegotiate the financial terms.

However, these attempts have so far apparently been unsuccessful. To date, nothing has changed about the problem. For the millions of devices that Apple sells every year, the iGroup pays less than 30 cents per device for the right to install Arm-based chips, reports The Information. Although Apple is one of Arm’s largest and most important customers, this is the lowest royalty rate among Arm’s smartphone chip customers. Apple would account for less than five percent of Arm’s sales. The two largest Arm customers, QUALCOMM and MediaTek, would receive twice the share, it is said.

Quarterly figures

Arm, as a central supplier, is also feeling the effects of the fact that the smartphone market has been shrinking for months. Arm suffered a loss of $114 million in the second quarter of fiscal 2024, after reporting a profit in the same period last year. The company increased its revenue from $630 million to $806 million and missed analysts’ market expectations with its sales forecast for the current quarter. This was Arm’s first quarterly results since its IPO.

Arm stock

Arm shares have gained 27.23 percent since their IPO on the NASDAQ this year and are currently priced at $64.89 (as of December 11, 2023).

Based on 27 Wall Street analysts who have provided 12-month price targets for ARM in the last 3 months, according to TipRanks, the average price target for Arm is currently $61.59, 8.39 percent below the current price . Of the 27 Wall Street analysts, 18 recommend buying the stock, eight recommend holding it and one of the analysts has given the stock a sell rating. The highest price target is $85.00 and implies an upside potential of around 26 percent. The lowest price target is $46.00, which would mean a loss of around 32 percent.

Editorial team finanzen.net

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