Apple and Amazon Adopt Arm-Based Chips

Arm Ltd.'s new generation of chips is putting pressure on Intel Corp.

As the British chip-design specialist prepares for a potential public listing later this year, it is working to ensure that its products are up to snuff.

Arm-based chips are gaining market share in PCs and are becoming a more formidable rival in the increasingly important data-center market, where Intel has long been the undisputed leader. Amazon.com Inc. is one company that is investing in this technology.

Apple has embraced the technology for its self-made server chips, and Microsoft Corp. is following suit.

Google and Arm are working on processors using building blocks licensed from Arm, according to people familiar with their efforts.

This past week, the Cambridge, England-based company demonstrated some of its popularity when Apple Inc. AAPL 3.08%

Apple has expanded its use of Arm-based chips, introducing two new versions for MacBooks. This leaves Intel supplying processors only for Apple's highest-end desktop computers.

Analysts surveyed by FactSet expect Intel to post a 23% decline in revenue in its PC-focused business when it reports quarterly results on Thursday. Intel’s server business sales are forecast to retreat 40% from the year-prior, reflecting a weakening economy and loss of market share to its rival Advanced Micro Devices Inc. and to Arm-based chips.

The recent success of Arm-based chips with cloud-computing operators is especially significant because these data centers consume a huge number of chips. Arm earns royalty payments on every chip made or sold using its design.

This is a huge opportunity for our company, according to Arm Chief Executive Rene Haas.

Arm, a subsidiary of Japan's SoftBank Group Corp., is planning to go public later this year. The company's IPO plans have been delayed due to market turmoil, but Arm is still deciding where to list its shares. There is political pressure in the UK to list in London.

Arm is known for creating the basic components of circuits that are essential to smartphones. The company's goal is to minimize power consumption in order to extend battery life. Arm-based chips are used in more than 95% of smartphones, including all Apple iPhones.

Arm makes most of its money by licensing chip building blocks, rather than making the devices themselves. This gives them a relatively modest sales figure, despite their reach. In 2021, they generated $2.7 billion in revenue, which is up by more than a third from the previous year. However, this is still only about 3% the size of Intel.

Its success in the smartphone market has translated to other areas. According to Mercury Research, processors using its chip format now feature in more than 10% of all PCs sold as of the third quarter of last year. While global shipments of laptops are expected to decline this year by a high single-digit percentage, those for Arm-based laptops could grow, according to Counterpoint Research.

The share of processors shipped to cloud-computing companies that use a different chip architecture than Intel's (largely Arm-based chips) reached 16% last year and is predicted to rise to 53% by 2026, according to Canalys, a research firm. However, estimates of Arm-based chips' market share vary widely because in-house applications like those developed by Amazon aren't easy to track. Arm chips are now also found in virtual-reality headsets and autonomous vehicles.

Intel is fighting back with its new generation of server chips. This month, the company released its long-awaited new generation of chips, promising high performance and power-saving capabilities. Lisa Spelman, an Intel vice president in charge of its server processor products, said, "We know what we need to do in order to be the preferred supplier for these products, and we've been working hard to put that foundation back together and ensure that we do win."

As cloud companies focus more on environmental stewardship, arm-based server chips are benefiting. The three biggest American cloud providers have pledged to cut their carbon footprints by 2030 or earlier.

Data centers can house hundreds of thousands of servers and require as much power to run a day as about 30,000 residential households. Reducing the power consumption of server farms is critical to meeting carbon reduction targets, officials from the cloud providers have said.

Dave Brown, a vice president at Amazon who handles the company's cloud-computing server farms, said that power is going to be a problem for Amazon and for everybody else. He said that Amazon's latest Graviton chips, which are based on Arm and were released late last year, are up to 60% more efficient than its other CPUs, which consist of Intel and AMD chips.

Intel has not directly responded to Amazon's performance claims, but CEO Pat Gelsinger suggested last year that a generation of its server chips set to debut in 2024 would outclass Arm alternatives on key efficiency and performance metrics.

Arm's success made it an attractive target for high-value deals. In 2016, SoftBank paid $32 billion for the company, which allowed Arm executives to increase research spending by 10-15%. This freed up the company to focus on its rivals without the pressure of having to post its own quarterly financial results.

Former CEO Simon Segars said that SoftBank's investment allowed the company to focus on research and development, resulting in circuit designs that are tailored specifically for servers. This focus on R&D has helped the company become a leader in its field.

Nvidia Corp., America's largest chip company by value, attempted to acquire Arm from SoftBank in 2020 for $40 billion. However, many customers objected to the deal, fearing that Arm, which has a reputation as the Switzerland of tech, would be owned by a rival and pressured regulators to block the transaction. Nvidia and SoftBank called off the deal a year ago.

Ampere Computing LLC is a startup that has raised over $850 million from investors and has filed to go public. The company is designing its own Arm-compatible chips from scratch and counts Microsoft and Hewlett Packard Enterprise Co. among its clients. Its chips offer new choices in a server market long dominated by Intel and AMD.

"We're talking about disrupting a 30-year status quo," said Ampere CEO Renee James, a former Intel president who left in 2016 after being passed over for the top job there.

Meanwhile, Arm's customers are opening new fronts to win PC business. Mobile-phone chip giant Qualcomm Inc. is working on Arm-based chips for Windows laptops. Those devices could land with customers this year and help drive the growth in Arm-based laptop shipments, Counterpoint Research said.

Lisa Su, chief executive of Intel's rival AMD, said last year that her company was in the early phases of working on Arm-based chips that could potentially go into videogaming consoles. This would give AMD a foothold in the console market, which is currently dominated by Intel.