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ARMing for Innovation

September 16th 2016

ARM traces it’s origins back to Acorn Computers Ltd, which was a British computer company established in Cambridge, in 1978. The company produced a number of computers which were especially popular in the UK - Acorn's BBC Micro computer dominated the UK educational computer market during the 1980s and was for many the first introduction to computing.

The Acorn machines used a so called Reduced Instruction Set Computing (“RISC”, pronounced “risk”) microprocessor.  This is a design strategy based on the insight that a simplified instruction set provides higher performance when combined with a microprocessor architecture capable of executing those instructions using fewer microprocessor cycles per instruction.

The RISC design approach was so successful that in 1990 Acorn formed a joint venture with Apple and VLSI technology (who made the processor chips) – the name ARM came from Acorn RISC Machine.  The company was immediately profitable and soon had offices in Silicon Valley and Tokyo. 

The RISC design innovation had another useful characteristic – low power.  So with the advent of digital personal assistants (a.k.a. tablets) and then mobile phones, ARM’s designs truly became ubiquitous.  It is now estimated that ARM designed chips power over ¾ of the all embedded processors, including over 95% of all smartphones.  In 2015, over 15 billion ARM designed chips were sold.

ARM’s financial performance has therefore been impressive.  By 2010, it was turning over £400 million.  By 2015 it has grown to £1bn.  In the same year it generated £360 million of free cash, enabling it to acquire over half a dozen other technology players and invest in innovation (including at least one fund based in Jersey).

But for all it’s commercial success, ARM’s strength lies in it’s continued design innovations.  Of it’s 4,000 global workforce, over 1,500 are employed in Cambridge, despite the fact that only 1% of ARM’s revenues are UK based.  Almost 500 key staff are solely looking at blue sky products, from the Internet of Things to smart cities and homes.

Softbank is paying £24bn for a company producing £511m of normalised profits – 47X, way of out of kilter with other mature tech businesses sales.  But Softbank is buying the future.  It has bet on the world needing ever more innovation.  And it sees ARM – and by implications the wider Cambridge centric UK innovation cluster – as the shape of things to come.  Softbank has even entered into legally binding assurances to maintain ARM’s headquarters in Cambridge and double its UK-based staff over the next five years. 

Who would bet now that innovative design would go out of fashion?

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