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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Sam Johnson who wrote (39032)	2/7/2001 6:05:47 AM
From: Apollo	Respond to of 54805

Strong work on ARMHY, Sam. Thank you. <EOM>

To: Sam Johnson who wrote (39032)	2/7/2001 10:06:20 AM
From: Judith Williams	Read Replies (1) \| Respond to of 54805

Sam-- Thanks. You must have something close to total recall. ARMHY is constantly talked about in the current RuleBreaker seminar at the Fool. The sticking point for most comes with the RB criterion of 10x increase over 5 years. Nobody quite sees ARM filling that bill, given its high current premium and (relatively) low revenues. --Judith

To: Sam Johnson who wrote (39032)	2/7/2001 11:56:18 AM
From: EJhonsa	Respond to of 54805

Here is one question we did have about their ability to accumulate true enabling technology gorilla power (We posted this on the ARM thread last year and never really got a clear answer): There may not be a compelling reason for the industry to coalesce around a single architecture, ARM's or anyone elses. If several cell phone makers become ARM licensees, is there any reason that others can't go on using a competitor's architecture? I think ARM's lock on its market, or at least the customers that currently use their CPU cores, is very similar to the lock that TI has on its customers. Just as there's nothing technically stopping Nokia or Ericsson from ditching TI, Qualcomm or Intel could just as easily abandon ARM with regards to their future chipset development plans. However, doing so would mean that the given company's engineers would have to familiarize themselves with the intricacies of a completely new CPU architecture, something that's easier said than done after having spent years working solely with ARM. Also, as you pointed out, all the ARM-related development software that a company might've bought would go to waste. They only receive about 10-15c royalty per chip, and it’s debatable whether they can leverage much power they way a Microsoft could over their value chain. The low royalty rate is one of the things that's always troubled me about ARM. From ARM's 4Q earnings release (http://biz.yahoo.com/prnews/010131/arm_holdin.html): Royalties also grew impressively by 130% to 25.6 million pounds ($37.4 million) in 2000 from 11.1 million pounds a year previously with an increasing range of products being launched into the varied end markets where our technology is used...We anticipate shipments for the calendar year of more than 400 million units compared to 182 million in 1999. Thus, for 2000, ARM earned royalties of roughly 9.3 cents per CPU core. Granted, the company's average royalty per unit was roughly 10% higher than 1999, and this trend will most likely continue as customers continue to migrate to more advanced ARM cores, but this number still comes across as preposterously low, given that the ASP for these units was most likely above $10, with a number of chips undoubtedly selling for more than $20. For those $20+ chips, I find it highly unlikely that, given their current market position in this field, if ARM raised its royalty rate by, say, 15-20 cents/chip, their licensees would run into the night screaming. This should especially hold true for the wireless market going forward, as next-generation handset designs will inevitably require the use of far more powerful (and thus expensive) ARM cores. Eric PS - Just came across this piece from The McKinsley Quarterly regarding how the information-related benefits provided to a company's customers by the IT revolution is resulting in major industries becoming increasingly Darwinian. Those currently employing a "basket strategy" for their portfolios might especially want to take heed: mckinseyquarterly.com