Arm CEO says being part of SoftBank gave it time to pivot

The new CEO of Arm says that the designer of microprocessors is growing again — following its failed sale to Nvidia — thanks to a strategy to move beyond the stagnant smartphone market.

Why it matters: With the Nvidia deal scuttled by opposition from regulators and competitors, cash-strapped parent company SoftBank is now looking to spin out Arm as a separate public company.

What they're saying: "The years under SoftBank gave us the air cover we needed to do a bit of a pivot," Arm CEO Rene Haas told Axios.

The big picture: When Nvidia was trying to buy Arm, it made the case to regulators that the designer of microprocessors was stuck in the saturated mobile market and faced "significant financial headwinds."

• Haas said that business was actually relatively flat for the prior several years, as Arm worked with customers to craft Arm-based chips for new markets and then get those chips designed into products. "We knew that was going to happen," Haas said.
• But financial results released last week show the company's years-long efforts to diversify itself are paying off with record revenue and a burgeoning pipeline of new customers.

Catch up quick: SoftBank had hoped to sell Arm to Nvidia in a deal initially valued at $40 billion. However, the companies scrapped the effort in February after the FTC sued to block the deal and regulatory approval became unlikely.

• Arm doesn't make chips, or even design entire semiconductors, but its chip blueprints are used in everything from smartphones to cars to data centers.
• Haas, who had been running Arm's intellectual property business, took over as chief executive after the Nvidia deal was cancelled and longtime CEO Simon Segars stepped down.

By the numbers: Arm's latest quarterly results, released last week, show a company that has maintained its strong position in mobile while growing its business supplying chips for cars, servers and other internet-connected devices.

• Arm took in $2.7 billion in revenue for the fiscal year, the first time it has topped $2 billion.
• Importantly for its future, the company took in more than $1 billion in licensing revenue. While Arm gets most of its revenue from per-chip royalties, the amount it takes in from licensing deals is often an indicator of growth in future royalties.

It took a while for Arm to get to this point. It helped that it made the transition as part of the much larger Softbank, rather than as a separate public company, as it was for much of its existence.

• "The Arm that SoftBank bought was a great company, but very very concentrated in mobile," Haas said.

Details: Arm is starting to see real revenue from businesses that were once just aspirational targets on its PowerPoint slides.

• In the data center, Microsoft offers Arm-based processors as an option for Azure, as does Amazon with AWS.
• Cars are including more and more chips, many of them Arm-based, to handle everything from entertainment and navigation to driver assistance features.
• Arm chips are also finding their way into all kinds of other devices, including networking gear and all manner of other Internet-of-things devices.
• Even in computing, where Arm chips have struggled against those from Intel and AMD, the company is making some headway. Notably, Apple has switched to its Arm-based M-series of chips, while Haas said Arm is gaining ground at the low-end of the Chromebook market with machines powered by Rokchip and MediaTek.

The bottom line: "It's a combination of a strategy you put in place and then good timing and a little bit of good luck," Haas said.