(Bloomberg) — Arm Holdings Plc, which made its name licensing technology to semiconductor makers, will begin selling its own chips for the first time, adding a business that it expects to generate about $15 billion annually within five years.
Meta Platforms Inc. will be the first major customer for the company’s chip, called an AGI CPU, Arm said Tuesday at an event in San Francisco. The product will have as many as 136 cores — a measure of processing power — and draw 300 watts of electricity, Arm said. Taiwan Semiconductor Manufacturing Co. will produce the chips.
As part of the move, Arm laid out aggressive sales targets for the coming years. The UK-based company expects revenue from the new chip business to eclipse sales from its current operations, which focus on selling intellectual property.
That will help generate total sales of roughly $25 billion within five years, five times the level today, Arm said. The IP business will continue growing, hitting about $10 billion by that point, the company predicted.
The sales outlook sent Arm shares up as much as 7.8% in late trading, building on a 23% climb this year. Shares of SoftBank Group Corp., which owns a majority of Arm, rose 8.6% in Tokyo. The British company’s stock price underpins the Japanese parent’s ability to finance Masayoshi Son’s bets on OpenAI and data centers.
Under Chief Executive Officer Rene Haas, Arm has shifted from its roots as a provider of smartphone technology and taken a greater role in the data center market. The change is meant to help the business get more of the money generated by what is often complex and expensive work.
The shift also helps Arm benefit from bigger-ticket purchases. Even the most expensive smartphone chips cost tens of dollars. The highest-end data center semiconductors can run in the tens of thousands.
Its earnings should reach $9 a share in that time frame. Analysts have estimated that earnings will be $1.75 a share in the current fiscal year, excluding some items.
Chief Financial Officer Jason Child said that while Arm’s current offerings — semiconductor designs and technology licenses — are more profitable in terms of margins, selling actual chips will bring in far more profit dollars.
On a theoretical $1,000 chip, Arm gets about 5% in licensing revenue when customers use its instruction set — the basic code a chip uses to communicate with software. That’s pure profit. But if the client uses Arm’s designs, the profit payoff is about $100. And if Arm makes the chip itself, it gets about $500 in gross profit dollars, he said.
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