Japanese mobile industry giant SoftBank is about to buy ARM Holdings in the U.K. for more than $32 billion. A lot of money for a company whose name most people wouldn't recognize. But ARM has a major importance in high tech, with two examples being Apple and the "internet of things" (IoT).
And ARM doesn't actually make any products.
Instead, ARM creates intellectual property, like the ARM architecture, the underlying design of every single ARM computer chip out there--more than 50 billion so far, according to the company. Its more than 1,000 customers, which include Apple, make chips based on that architecture.
ARM chips, without a fancy extended branding campaign like that of Intel, have become the basic chip design of choice in 99 percent of all smartphones and tablets. Chances are overwhelmingly good that you have one close at hand.
What puts ARM ahead is that the chips are low in energy consumption while still providing power and are relatively cheap compared to the price of an Intel desktop or server processor. The mobile market turned into a classic case of disruption by new technology.
SoftBank is run by very smart people who have directed the company through many changes. At one time, its business depended on trade shows and high-tech publications. SoftBank shifted out of the market before it imploded and turned into a telecommunications and internet business.
Now it's buying ARM because that gives it an entrée into...pretty much everywhere. The chips are already embedded into many things not considered consumer electronics, which provides a head start in the IoT world. That isn't some futuristic technical fantasy but something being put to work today. Here are some examples already in existence:
- Smart meters dial in electrical usage readings and eliminate the need for meter readers, saving utilities companies money.
- Chips in jet turbines monitor performance during use and provide insight for operations and future designs.
- Medicine dispensers place the right amount of prescriptions into cups and notify patients that it is time for a dose.
- Remote monitoring of pipelines lets energy companies know when to send a repair crew to address a problem.
Whether in the consumer, business, nonprofit, government, or industrial sectors, IoT will have an increasing presence. For ARM chips, the promise is ubiquity and growing royalty streams beyond the billion-dollar-a-year mark.
SoftBank gets a neat expansion beyond telecommunications services into an area that is growing at a much faster rate, with the marketing savvy ARM lacks to promote products on a grand scale. IoT often uses wireless communications, so the acquisition is a way to gain a foothold in a complementary business. Plus, SoftBank now has control over features and directions, giving it broad influence.