(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.<\/p>\n
Meta Platforms Inc. will be the first major customer for the company\u2019s chip, called an AGI CPU, Arm said Tuesday at an event in San Francisco. The product will have as many as 136 cores \u2014 a measure of processing power \u2014 and draw 300 watts of electricity, Arm said. Taiwan Semiconductor Manufacturing Co. will produce the chips.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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\u2019s stock price underpins the Japanese parent\u2019s ability to finance Masayoshi Son\u2019s bets on OpenAI and data centers.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
Chief Financial Officer Jason Child said that while Arm\u2019s current offerings \u2014 semiconductor designs and technology licenses \u2014 are more profitable in terms of margins, selling actual chips will bring in far more profit dollars.<\/p>\n
On a theoretical $1,000 chip, Arm gets about 5% in licensing revenue when customers use its instruction set \u2014 the basic code a chip uses to communicate with software. That\u2019s pure profit. But if the client uses Arm\u2019s designs, the profit payoff is about $100. And if Arm makes the chip itself, it gets about $500 in gross profit dollars, he said.<\/p>\n
Story Continues <\/p>\n
Arm decided to make the new chip because customers asked for it, Haas said. The product \u2014 a central processing unit, often described as the brains of a computer \u2014 is designed to work alongside the accelerator chips offered by companies such as Nvidia Corp. It helps coordinate work between computers, prepares data and runs elements that provide a response to users making AI queries, Arm said.<\/p>\n
\u201cThe product that we\u2019re building is not only compelling \u2014 but we actually have customers who are lined up to buy it,\u201d Haas said in an interview.<\/p>\n
The company said its product offers greater power efficiency compared with traditional CPU designs from Intel Corp. and Advanced Micro Devices Inc. That means that data center owners will be able to wring more computing power from the same footprint and electricity budget, Haas said.<\/p>\n
Arm\u2019s increasing reach is a direct threat to the so-called x86 data center products made by Intel and AMD, Haas said. Taking share from those traditional stalwarts in a rapidly expanding market will allow both his company and its customers to grow, he argues.<\/p>\n
\u201cThe market is plenty big enough for multiple players,\u201d Haas said.<\/p>\n
Arm faces plenty of competition in data center processors. A number of startups and established companies have sought to challenge Nvidia\u2019s dominance in the field with a variety of approaches. And Nvidia itself just introduced a new CPU lineup, targeting the category that Arm is now entering. Haas said his chip is aimed at a different part of the market than Nvidia\u2019s latest addition.<\/p>\n
Arm\u2019s chip move also threatens to complicate its relationship with customers. Most of the biggest buyers of data center silicon, including Meta, have their own in-house chip programs. And almost all of them license technology and designs from Arm.<\/p>\n
Data center operators buy chips from a range of suppliers. That includes Meta, which recently signed long-term deals with Nvidia, AMD and startup Cerebras Systems Inc. The social networking company plans to use the AGI CPUs with its other chips.<\/p>\n
\u201cWe worked alongside Arm to develop the Arm AGI CPU to deploy an efficient compute platform that significantly improves our data center performance density,\u201d Santosh Janardhan, head of infrastructure at Meta, said in a statement.<\/p>\n
Other companies \u2014 including OpenAI, Cerebras and SK Telecom Co. \u2014 also plan to deploy the AGI CPU in their infrastructure, Arm said. Off-the-shelf systems using the chip are out now from sellers such as Quanta Computer Inc. and Super Micro Computer Inc. They should be available in greater volumes in the second half of this year, Arm said.<\/p>\n
Haas also touted a potential opportunity to sell the new chip in China. Though the product doesn\u2019t yet have customers in that country, it likely wouldn\u2019t trigger US export controls, he said.<\/p>\n
Under Haas, Arm has increased its revenue by more than 20% a year. Annual sales topped $4 billion for the first time in 2025.<\/p>\n
At the same time, Arm has maintained a startlingly high level of profitability. Gross margin, the percentage of revenue left after deducting costs of production, was 98% in its most recent quarter.<\/p>\n
Most of Arm\u2019s peers in the chip industry have much higher sales but lower margins. Even Nvidia, with its near lock on sales of AI accelerators, has margins in the mid-70% range. But Arm generates a tiny fraction of the revenue: Nvidia is on course for annual sales of $356 billion this fiscal year, according to Wall Street estimates.<\/p>\n
SoftBank is also ramping up its own efforts to get into AI data centers. That push has involved acquiring chip startups and investing heavily in data center owners.<\/p>\n
What Bloomberg Intelligence Says<\/p>\n
SoftBank\u2019s exposure to AI semiconductors will rise with Arm\u2019s decision to sell its own chips, and synergies within SoftBank\u2019s AI ecosystem are possible as OpenAI is on the list of initial buyers. Arm\u2019s business operations will change as its market expands to selling chips from just designing, with management targeting $15 billion in annual revenue in five years compared with $5 billion in 2025, though with lower margins. Arm\u2019s initiative doesn\u2019t conflict with SoftBank\u2019s own pursuit of an AI accelerator chip, leveraging its acquisitions of Graphcore and Ampere<\/p>\n
– Kirk Boodry and Chris Muckensturm, analysts<\/p>\n
Click here for the research.<\/p>\n