Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Analysis: Apple Buying ARM Makes No Sense

Posted by Tom Foremski - April 22, 2010

Apple's ever growing stash of cash, now up to $41.7 billion, is helping to fuel speculation about what it will do with the money. In London, there are rumors that Apple will buy ARM, the UK chip design company, for around $8 billion.
Rosamund Urwin at the London Evening Standard, reported: City aflame with takeover talk of ARM and Xstrata

"A deal would make a lot of sense for Apple," said one trader. "That way, they could stop ARM's technology from ending up in everyone else's computers and gadgets."

ARM based chip designs are used in the iPhone, iPad and also by many others in smartphone and mobile hardware.

However, it makes no sense for Apple to invest $8bn in buying ARM because it would not gain anything. It already has the rights to use ARM designs and to customize them for its own uses.

Also, trying to stop ARM being used in other devices is a bad strategy because the value in using ARM, or competing designs such as MIPS, is in the customization. APple wouldn't be able to stop that work. And that's where ARM makes money -- by licensing the designs to many companies -- restricting that side of the business would ruin its profitability.

The best argument against the deal was made by commenter Conrad Longmore:

... it would be an expensive acquisition. Market capitalization (ARM) is about £3.3bn, but net income is just £40m. Anyone owning 100% of the shares would be spending £82.50 to earn £1 a year, which isn't great.

Apple would earn far more money by investing $8bn in its own businesses.

Intel is trying to break into the smartphone and mobile markets with its Atom processors but it is far behind ARM in design wins. It would make more sense for Intel to acquire ARM and try to persuade customers to shift to Atom.


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