British Success Stories – ARM Holdings

Over the next few months, I will be publishing brief summaries of successful UK companies. The first one (thanks to Chris Matthews for the details) is ARM Holdings which  is based in the outskirts of Cambridge, employs over 3,000 people,  and designs processors as well as software development tools. Its processors are mainly used in mobile devices, most notably those developed by Apple, Samsung and HTC. ARM sells the patents to these companies, rather than producing  its own chips, and, by 2005, 75% of all 32-bit processors were designed by ARM. Currently its  market share  in the smartphone market is 95%, with   production of  15 billion units of ARM design in 2015, compared to 9 million in 1990.

In 1990  the original company, Acorn, was approached by Apple to develop a joint venture which would design a breakthrough chip for a handheld processor. While Apple’s first handheld device was not a sales success, Nokia approached the company in 1993, and sales of the designs have grown tremendously since. To add to this success, ARM has  acquired a number of companies to develop designs for development tools, software and physical IP’s. As Apple was crucial for the modernisation and development of the mobile phone, ARM simply continued as its supplier, while attracting many other technology giants who were eager to follow Apple. Compared to Intel, which both designs and manufactures the chips in advanced facilities around the world, ARM has focused on selling  licenses for the chips rather than manufacturing and exporting them.

In term of economic theory, this is a good example of a company focussing on its comparative advantage in development, rather than attempting to compete with low-cost producers. It is also an example of inward FDI since  the Japanese IT firm SoftBank Group  recently made an offer for the company which was accepted by shareholders at the end of August.

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