Chip design firm Arm is prepping to strut out onto the public markets at a moment when the semiconductor industry is in flux.
The boom around AI is providing a bright spot in a market otherwise mired in a supply glut that followed a pandemic-driven shortage. SoftBank Group-backed Arm, which recently filed paperwork for what is expected to be the biggest tech public offering of the year, is riding a rebound in chip demand, according to Forrester VP and Research Director Glenn O’Donnell.
“The semiconductor world has been in a funk lately, for the last maybe two years,” O’Donnell said. “The semiconductor market is on a rebound. And, of course, the best time to get in on that is at the bottom, and we’re just coming off the bottom. So I think it’s a pretty good move.”
The Arm alternative: Arm has carved out a space in the industry as an alternative to Intel’s x86 architecture and AMD, which have dominated the market for years, according to O’Donnell.
Apple, which has a long history of working with Arm, has expanded its partnership with the firm over the last couple years with the transition from Intel to its own Arm-based silicon chips. Microsoft and Google are also working on more processors “using building blocks licensed from Arm,” according to the Wall Street Journal.
“Intel’s x86 is still king of the hill. But Arm represents an interesting and potentially exciting alternative that a lot of companies are pursuing,” O’Donnell said.
Because it licenses out designs instead of building its own chips, Arm has garnered a reputation for neutrality within the industry. But it also faces some competition from a seemingly even more impartial competitor: the RISC-V Foundation, an effort that has sought to develop open-source architectures and has gained some key support within the industry.
A “Switzerland” chipmaker: Part of what has pushed some tech leaders to embrace RISC-V could have been the prospect of Nvidia acquiring Arm, a blockbuster deal that was announced in 2020 but fell apart last year due to regulatory pressure.
Now, with news of the IPO, Reuters reports that major Arm clients like Alphabet, Apple, Nvidia, Microsoft, and Samsung are in talks to buy up shares in hopes of expanding their relationship with the chip design company.
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Holger Mueller, VP and principal analyst at Constellation Research, said it could serve to further bolster Arm’s neutrality in the industry.
“We may see a Switzerland moment for Arm, where key cloud platform vendors take a small stake to make sure they have some form of control over the future of the chipmaker,” Mueller said in an email. “This may also be in Arm’s interest.”
The AI hype wave: The demand for AI amid the boom kickstarted by ChatGPT’s success is a big part of what’s fueling the chip industry out of a rut right now, according to O’Donnell. It’s even starting to change the way that semiconductors are designed as chipmakers turn to reinforcement learning techniques to make the arduous process more efficient.
In its F-1 filing with the Securities and Exchange Commission, Arm repeatedly mentions AI as a driver of future growth. While Nvidia dominates the market for the graphic processing units (GPUs) that are fueling the next wave of AI, O’Donnell said that Arm’s strength could be in inferencing, or the process of putting a model into production.
“There are two elements to AI. One is the learning and one is the inferencing,” O’Donnell said. “The learning is mostly reliant on GPUs. Nvidia is riding that wave like crazy right now. And the inferencing is run by mostly standard compute systems. And Arm as a platform is a viable choice for doing that inferencing.”
Sustainability factor: Arm also has the advantage of being more energy-efficient than some of its competitors, which could give it an edge as more companies look for ways to meet sustainability standards, according to O’Donnell.
“Everybody’s riding high on Nvidia, but its processors burn an awful lot of power,” he said. “There’s an awful lot of wasted energy in the form of heat…the Arm architecture overcomes a lot of that, and they burn a lot cooler.”