Arm-Based Chips Make Inroads With Apple, Amazon

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.

AMZN 3.81%

com Inc. has embraced the technology for its self-made server chips, and

Microsoft Corp.

MSFT 3.57%

and Google are working on processors using building blocks licensed from Arm, according to people familiar with their efforts.

The Cambridge, England-based company demonstrated some of its popularity this past week when

Apple Inc.

AAPL 1.92%

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—only furnishing 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. 

STMicroelectronics chips featuring Arm circuit designs.



Photo:

Chris Ratcliffe/Bloomberg News

“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.

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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 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 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. 

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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 without the pressure of having to post its own quarterly financial results. 

“SoftBank came along and gave us the freedom to go and invest all of our profits back into R&D,” former CEO

Simon Segars

said, helping it develop circuit designs catered directly to servers.

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. 

Also trying to ride the Arm wave is Ampere Computing LLC, a startup that has raised more than $850 million from investors and has filed to go public. The server-chip company is designing its own Arm-compatible chips from scratch and counts Microsoft and

Hewlett Packard Enterprise Co.

among its clients. Its chips offer new choices in a server market long dominated by Intel and AMD.

“We’re talking about upsetting a 30-year order,” said Ampere CEO

Renee James,

a former Intel president who left in 2016 after being passed over for the top job there. 

Meanwhile, Arm’s customers are opening new fronts to win PC business. Mobile-phone chip giant

Qualcomm Inc.

is working on Arm-based chips for Windows laptops. Those devices could land with customers this year and help drive the growth in Arm-based laptop shipments, Counterpoint Research said.

Lisa Su,

chief executive of Intel rival AMD, said last year that her company was in the early phases of working on Arm-based chips that could potentially go into videogaming consoles.

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Write to Asa Fitch at [email protected]

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