ARM CEO and UKtech50winner Warren East tells Computer Weekly how the ubiquity of its chips in smartphones has catapulted the company to the forefront of the mobile revolution and why its business model is crucial to fostering the innovation necessary for the digital age.
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There's no doubt that ARM has benefited from exposure to exponential structural growth in the market. “ARM’s existence more or less overlaps entirely with the internet and
the worldwide web,” says CEO Warren East. “We’ve been part of this tremendous digital revolution. Having been in the right place at the right time has been helpful,” he says.
But it is the company’s unique business model, which licences chip designs rather than the manufacturing of standard semiconductors, which has enabled it to capitalise on the seismic industry changes. Since becoming CEO in 2001 East has seen the company become a world-leader under this model.
Model for the digital world
East believes ARM’s approach is better suited to the digital world because of the innovation it fosters. “Just look at all the innovation in the mobile space, where ARM has been strong, and compare that over the same period to the world of PCs. It’s a different picture altogether. If you think about the revolution enabled by mobile, it’s a completely different order of magnitude,” he says.
“We don’t deliver one recipe and that is it, we deliver the ingredients. We actively discuss with partners what they can do that is different from what we
just have in the ARM world,” says East.
“Our business model of partnerships enables choice, leads to a competitive supply chain for companies building products and innovation because of that competition. That is a great way forward for the industry at large,” he says.
“I’m a firm believer in two heads being better than one, and when you multiply that by our more than 300 semiconductor partners, 300 heads are going to do an even better job.”
It’s a model that has seen ARM enjoy consistent double-digit growth, having recently posted a profit increase of 22%.
East attributes the company’s success to having always approached the market as global, with the company being licensed across multiple products and companies – from the smallest sensors to supercomputers, as well as smartphones.
Just look at all the innovation in the mobile space, where ARM has been strong, and compare that over the same period to the world of PCs. It’s a different picture altogether.
“So there is tremendous scope and scalability,” he says. “It’s been a continuous process of concentrating on pursuing that path and keeping investment and cost levels under control so that our partners know our business is a healthy, secure place to be when they put their future in our hands.”
Financial prudence is crucial to winning trust and building long-lasting relationships. “Our industry does suffer from a number of companies failing to make profits. And if you are engaging with a business, you need to know in the long term that the supplier today will still be around to invest in your future over the next five, 10 and 15 years. There needs to be that long-term assurance.”
Does the more recent use of ARM in lower-end laptops and Windows 8 tablet devices mean the company is manoeuvring itself into rival Intel’s space?
“We have said for some time that ARM is the architecture for a digital world, and that doesn’t mean just mobile, or the exclusion of the PC – it involves the whole digital world,” he says. “Intel has been hugely successful with microprocessors in PCs and more latterly servers, but we regard that as a fair-game market for ARM, too.”
Confidence in UK tech
East sits on the government’s UK Trade and Investment board for technology. So what does he think ought to be done to encourage more companies like ARM? “I don’t want to stray too much into government policy. I think the government has got a difficult task on its hands anyway, and interference from companies such as ours is probably not desperately helpful.
“The UK is a good place for technology, as we produce innovative, problem-solving engineers. ARM operates with different design centres around the world, yet 40% of our employees are based in the UK. So the raw materials are pretty good.”
East has a background in engineering and design, and that knowledge helps him interact with customers around the world, although he admits it has been 20 years since he last designed a chip.
But he is positive that as a country the UK is well placed to become a global technology player, both geographically – being situated between the biggest technology markets of the US and Asia – and in terms of the country’s cultural temperament.
“As a country, the UK is in some ways very culturally flexible. That’s in our history and even goes to the route of the English language itself, which has borrowed from so many other languages. As a culture, we’ve always been open to interacting with other people,” he says.
East also believes the business climate for technology has recently improved, with the introduction of initiatives such as the Patent Box, which allows companies to apply for a reduced 10% corporation tax rate to profits attributed to patents.
The government’s encouragement of technology clusters such as Tech City are also a positive development, he says. “The fact that technology is even on the government’s agenda is really good progress, compared with 10-15 years ago.”
But fostering tech clusters and support for innovative companies doing R&D through tax breaks will not instantly create technology
companies, says East.
I see a fantastic future in our technology across a range of applications, so we need to make the investments now
He points to the Cambridge tech cluster being 50 years old as evidence that such environments often need a long period of incubation. “Although technology appears to be a fast moving space, it often takes a long time to develop.”
Investing in the future
The second half of 2012 has been more sluggish than expected for the smartphone market. And while East says the company has not scaled down its overall recruitment
drive, it has cut its cloth accordingly to manage costs in the uncertain economic climate.
“We’ve hired 700 people over the past three years, which is a net increase of around 30-40%, and we will continue on that trajectory. We’re doing that so we can invest in the business now for products that will be licensed in three years and available to buy in five. I see a fantastic future in our technology across a range of applications, so we need to
make the investments now.”
ARM is continuing to create new products as well as improve on its existing portfolio.
“The internet of things won’t deliver value unless we have a network infrastructure in place, so we are having products designed into that end of things and also into servers," he says.
As the move to an increasingly connected world means a heavier infrastructure and server footprint, energy-efficient technology is going to be crucial. “It’s going to require a huge amount of energy – more than the world can afford. And ARM is one of the tools in achieving a sustainable solution,” says East.