Arm could receive lower royalties from one of the chip designer’s key customers, according to analysts at Liberum.
The broker, a long term seller of Arm shares, said:
Qualcomm, which is a top three customer for Arm, has released more details about its next high end smartphone chip, the snapdragon 820. Qualcomm’s current high end platform, the snapdragon 810, relies on eight standard Arm V8 cores.. for which ARM likely receives a royalty of around 2.5%.
For its next generation 820 platform, Qualcomm has reduced the Arm core count from eight to four. It has also used its own implementation of Arm V8 (Kryo) rather than standard off-the-shelf Arm cores. The reduction in core count and move to its own implementation may reduce the royalty closer to around 2%. Therefore assuming the chip price remains the same, Arm may see a 20% royalty reduction from Qualcomm. Qualcomm has only implemented this strategy at the high end and we await further product announcements to see if it follows the same strategy through its mid and lower end product line up.
At present most high end chip vendors (Qualcomm, MediaTek, Samsung LSI, HiSilicon) use eight standard Arm V8 cores and the majority manufacture their chips at TSMC. This is leading to limited differentiation and therefore price pressure. Qualcomm’s move to reduce and customize its Arm cores...enables it to differentiate its products. If others were to follow suit, most likely Samsung LSI, then Arm’s royalty per smartphone chip would not increase as dramatically as consensus models.
Arm shares are currently 7p or 0.8% lower at 943p, but they are outperforming a falling FTSE 100 which is down 1.6%.
Meanwhile AstraZeneca has edged up 3p to 4250.5p after the pharmaceuticals group won US approval for a new dose of its blood thinning drug Brilinta, which could double the number of people eligible for the product.
