arm: investing for future growth - ソフトバンク on investments –armv8-a case study arm...

ARM: Investing for future growth

Ian ThorntonHead of Investor RelationsARM Holdings plc

ARM Holdings is a subsidiary of

2 © ARM 2017

Agenda

Part one

§ ARM overview

§ Flexible business model

§ Impact of accelerating investment on P&L

Part two

§ Amortisation of intangibles

§ Current technology investments

© ARM 2017 3

ARM overview

4 © ARM 2017

Chip design – then and now

1961

Two billion transistorsThousands of engineers

Four transistorsOne engineer

2016

5 © ARM 2017

A system-on-chip contains multiple blocks of IP

Main processor for running the operating system, applications and user interface

Graphics processor for generating images

Accelerators for frequently-used compute workloads, e.g. image processing, encryption, vision

Radio controllers for mobile, wifi, Bluetooth, GPS

Hardware controllers for the display, memory, image sensors, power supply, etc

Input/Output interfaces for USB, Ethernet, etc

6 © ARM 2017

ARM’s current business

§ ARM develops intellectual property (IP) blocks which are used in silicon chips

§ Our partners combine ARM IP with their own IP to create complete chip designs

§ We earn license fees when we deliver ARM IP to our partners and royalties when our partners ship chips that contain ARM IP

§ Highly profitable and cash generative

7 © ARM 2017

Accelerating investmentto increase share gains

mbed Cloud

Investing to create new revenue streams

§ mbed Cloud SaaS business§ Early-stage investment but many years in research§ Securely connect any device into your network, using any

communications technology, supporting any cloud platform§ Cloud provision: secure device identification, on-boarding and configuring§ Cloud connect: manage your IoT networking using standard-based comms§ Cloud update: remotely update firmware across all your devices

mbed Cloud PartnersGenerating

$600mannualised

free cash flow

8 © ARM 2017

Investment philosophy

§ SoftBank has asked ARM to accelerate investments and to increase risk appetite

§ Rate of investment is discretionary and controlled by ARM’s Board

§ Investments remain targeted on delivering long-term, sustainable growth

§ All costs are expected to be financed from IP business’ revenue streams

§ Over the medium term, during this accelerated investment phase, costs are expected to grow faster than revenues

© ARM 2017 9

Linking ARM’s business modelto investments in new technology

© ARM 2017 10

Revenue

Spreadsheet available from: www.arm.com/ir

11 © ARM 2017

License revenue

$0m

$100m

$200m

$300m

$400m

$500m

$600m

$700m

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

ARM license revenue - SoftBank fiscal year

$602m $601m

12 © ARM 2017

Processor royalty revenue

$0m

$50m

$100m

$150m

$200m

$250m

$300m

$350m

$400m

$450m

$500m

H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Pre-2007

2007-2011

2012 to present

~380 licences

~380

~680 licences signed since Q1

2012~680

Financial years

13 © ARM 2017

Software and Services

§ ARM supplies products and services that help our partners bring ARM-based devices to market

§ Includes Keil tools, developer boards, customer support and training and new SaaS business

mbed Cloud

© ARM 2017 14

Investments and profits

Spreadsheet available from: www.arm.com/ir

15 © ARM 2017

How ARM thinks of its investments

Product investment

EngineersResearch

Ecosystem investment

Product MarketingSegment MarketingSales and support

Enabling Functions

HRFinanceLegal

IT

80% 10% 10%

16 © ARM 2017

Increasing R&D = Increasing Headcount

§ ARM intends to double ARM’s UK headcount within five years of the acquisition and expand headcount in all regions

§ More engineers means ARM will§ Develop more technology§ Develop technology faster§ Help our customers get their products to

market sooner

- 1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2011 2012 2013 2014 2015 2016

ROTW

UK

2021

Doubled totalheadcount from 2012

17 © ARM 2017

18 © ARM 2017

19 © ARM 2017

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

£0m

£200m

£400m

£600m

£800m

£1,000m

£1,200m

£1,400m

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Revenue Total Costs

IFRS EBIT IFRS Margin

Profits and profitability

Note: Excludes certain one-offs- 2013: Write down of MIPS patents (£100m)- 2016: Execution costs associated with SoftBank acquisition

§ Over the past 10 years ARM’s revenues grew faster than costs

§ Profits grew and profitability edged over 40%

§ At the start of the next phase of investment ARM expects costs to grow faster than revenues

§ This should yield even greater profits in the future

Fiscal years

20 © ARM 2017 -£500m

-£400m

-£300m

-£200m

-£100m

£0m

Profits, cash generation and use of cash

£0m

£100m

£200m

£300m

£400m

£500m

£600m

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

IFRS EBITNormalised cash generation

Acquisition related paymentsIP licensing and other one offs

DividendBuybacks

Note: 2016 excludes £66m of SoftBank acquisition related expenses

21 © ARM 2017

Uses of cash in more detail

£0m

£20m

£40m

£60m

£80m

£100m

£120m

£140m

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Acquisition related paymentsIP licensing and other one offs

Dividend

£0m

£20m

£40m

£60m

£80m

£100m

£120m

£140m

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Buyback

£0m

£50m

£100m

£150m

£200m

£250m

£300m

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016£0m

£20m

£40m

£60m

£80m

£100m

£120m

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Paused during global financial crises

IP licensing

Paying off bridgingloan related to

Apical acquisitionMainly Apical

acquisition £230m

22 © ARM 2017

ARM has over £1.2bn of net cash and no debt

£0m

£200m

£400m

£600m

£800m

£1,000m

£1,200m

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

£1,200m

23 © ARM 2017

Return on Investments – ARMv8-A case study

§ ARM incurs R&D costs many years before revenue starts

ARMv8-ADevelopment starts

Research into64-bit computing started in 2000

Multiple processorsin development

First generationof processors

Architecturedevelopment andprocessor design

2008 2009 2010 2011 2012 2013 2014 2015 2016

24 © ARM 2017



2008 2009 2010 2011 2012 2013 2014 2015 2016



Firstarchitecture

licensing

Firstprocessorlicensing

Processorlicensingramps

Processordelivery

(major revenuerecognition trigger)

New processorsannounced

25 © ARM 2017



2008 2009 2010 2011 2012 2013 2014 2015 2016



Architectureroyaltystarts

RoyaltyrampsProcessor

royaltystarts

26 © ARM 2017

Return on Investments – General case


1 2 3 4 5 6 7 8 9

New technologydevelopment starts

Research startedmany years ago

Recurringrevenuestarts

§ Revenue continues for many years after the investment phase has turn into a maintenance phase, leading to highly profitably business over time

Firsttechnologyagreements

Initial developmentphase Investment ramps

New technologyannounced

Technologydelivery

27 © ARM 2017

Summary of part one

§ ARM’s primary business continues to be very profitable

§ ARM intends to:§ Increase investment in primary business to accelerate market share gains§ Invest in new IoT business to create new revenue streams

§ Rate of investment is discretionary and under our control

§ Investments today yield revenues in many years’ time§ Costs are expected to grow faster than revenues for the medium term

28 © ARM 2017

Agenda

Part one

§ ARM overview

§ Flexible business model

§ Impact of accelerating investment on P&L

Part two

§ Amortisation of intangibles

§ Current technology investments

30 © ARM 2017

Amortisation of intangibles

§ ARM’s intangibles have been valued at around £5bn / $6.5bn / ¥700bn§ Amortised using a straight-line method over the useful life of the asset§ Amortisation for first eight years will be around £370m per year

Technology Customer relationships Trademarks

8-20 years 13 years 8 years

© ARM 2017 31

Post acquisition: Increasing investment in the latest technology to

accelerate market share gains and to create new revenue streams

32 © ARM 2017

ARM’s main markets

Mobile and Consumer

Enterpriseand Servers

Automotiveand Robotics

Embedded andConnectivity

Increasing functionality is creatingdemand for more advancedtechnology.

Market share: Networking 17% / Servers <1%

Market share in 2016: 10%

Market share: 30% (80% of 32-bit)

Market share in 2016: Mobile 90% / Consumer 65%

Increasing software costs is drivingneed for standard architecturecreating opportunity for ARM.

ARM is providing common platformfor software across cloud and network.

ARM technology is the leading processor due to low-power, smallsize (cost) and easy to program.

33 © ARM 2017

ARM technology is applicable across many markets

Mobile and Consumer

Enterpriseand Servers

Automotiveand Robotics

Embedded andConnectivity

Artificial intelligenceincluding computer vision

Virtual, augmented and mixed reality

Internet of things relatedtechnology

Hyperscale computing

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üSecurity

ü ü ü ü

34 © ARM 2017

ARM technology: Recent announcements





Security

DynamIQ for accelerated AI

Microsoft Azure Amazon AWS

Narrow Band IoT Safety-critical IP

Cetus Display Technology

Processors for secure IOT

35 © ARM 2017

ARM technology: Recent announcements





Security

DynamIQ for accelerated AI

Microsoft Azure Amazon AWS

Narrow Band IoT Safety-critical IP

Cetus Display Technology

Processors for secure IOT

36 © ARM 2017

ARM DynamIQ – Multicore redefined

New single cluster design Advanced compute capabilities

Redesigned memory sub-systemGreater flexibility

37 © ARM 2017

Accelerating AI adoption everywhere

DynamIQ boosting AI/ML performance both on CPU and in system

Improved access to acceleration

Up to 10x quicker response for accelerators

Dedicated processor instructions and optimized libraries for AI

More than 50x AI performance boost on the CPU in the next 3-5 years

38 © ARM 2017

ARM announced Narrow-Band IoT radio IP

2017 2018 2019 2020 2021

Narrow-Band IoT is a key technology

ARM acquired two enabling companies

Forecast NB-IoT market shipments

Evaluation platform Q3 ‘17 Customer silicon Q3 ‘18

§ NB-IoT is a cellular communications standard compatible with 5G

§ Enables pre-installed (and pre-paid) connectivity for any electronic devicewithin cellular coverage

§ No installation or set-up by consumeror enterprise. No on-going maintenancecosts.

§ New business models for carriers

§ ARM provides its partners a path to produce 5G capable SoCs with Cordio-N RF-to-application NB-IoT low power IP offering

39 © ARM 2017

ARM technology in Microsoft Azure and Amazon AWS

James Hamilton, VP and Distinguished Engineer at Amazonpresenting Amazon’s ARM-based chip at AWS re:Invent

“Every server we deploy will have at least one of these; some will have a lot more. This is a really big deal.”

Leendert van Doorn Distinguished Engineer at Microsoftpresenting the ARM-based server that Microsoft Azure has been using internally

“Over 50% of Azuredata center capacitycan be ARM servers.”

arm: investing for future growth - ソフトバンク on investments –armv8-a case study arm...

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