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ARM predicts revival in semiconductors next year

Announcing its quarterly results (roughly as expected - flat) ARM, designer of the world's most popular microprocessor, had some good news - it expects the electronics industry to recover a bit next year.

The bad news: the City financiers decided this was a bit optimistic, and wrote ARM's shares down by 3%.

ARM doesn't make chips; it designs the world's most popular RISC chip, which is now embedded in millions of phones and PDAs and other small devices like firewalls and routers everywhere. And it lives off the royalties paid by people who build and use it.

Royalties earned over £20.5 for ARM in the six-month period ended in March this year. It's a huge rise; it was only £12.9 million the previous year.

You get an idea of the small amount charged in royalties from the number of units involved: 358 million chips. But though the numbers went up 75%analysis are still worrying, because they think too many of these numbers are phones, and not enough are "new devices."

According to analyst Peter Clarke of http://www.siliconstrategies.com/article/showArticle.jhtml?articleId=12802703 Silicon Strategies, "there is concern among some observers that ARM faces a problem of 'customer saturation'."

Clarke says this is a problem arising from the fact that ARM has licensed its technology to just about every fabbed semiconductor company and foundry that it can. "The thesis runs that ARM is therefore constrained from now on to repeat business and this explains why initial license fees are not returning, and that this would ultimately make ARM a shadow of its former self."

This isn't a thesis that Clarke endorses: he believes customer saturation is not the biggest risk that faces ARM. He thinks saturation is a better problem than not enough customers, which is hard to dispute! - and he also expects ARM to move into software.

Rather, he worries about whether ARM can keep up with the development work being done by its licensees. Particularly, he singles out Intel. "For Silicon Business News, it seems Intel taking XScale and out-performing ARM - or another architecture coming up as best-in-class in some form of 'easy to apply multiprocessing architecture' is a bigger risk than customer saturation," he says.