ARM: Investing for future growth

Transcription

1 ARM: Investing for future growth Ian Thornton Head of Investor Relations ARM Holdings plc ARM Holdings is a subsidiary of

2 Agenda Part one ARM overview Flexible business model Impact of accelerating investment on P&L Part two Amortisation of intangibles Current technology investments 2 ARM 2017

3 ARM overview 3 ARM 2017

4 Chip design then and now Four transistors One engineer Two billion transistors Thousands of engineers 4 ARM 2017

5 A system-on-chip contains multiple blocks of IP Main processor for running the operating system, applications and user interface Graphics processor for generating images Accelerators for frequently-used compute workloads, e.g. image processing, encryption, vision Radio controllers for mobile, wifi, Bluetooth, GPS Hardware controllers for the display, memory, image sensors, power supply, etc Input/Output interfaces for USB, Ethernet, etc 5 ARM 2017

6 ARM s current business ARM develops intellectual property (IP) blocks which are used in silicon chips Our partners combine ARM IP with their own IP to create complete chip designs We earn license fees when we deliver ARM IP to our partners and royalties when our partners ship chips that contain ARM IP Highly profitable and cash generative 6 ARM 2017

7 Accelerating investment to increase share gains Investing to create new revenue streams mbed Cloud SaaS business Early-stage investment but many years in research Securely connect any device into your network, using any communications technology, supporting any cloud platform Cloud provision: secure device identification, on-boarding and configuring Cloud connect: manage your IoT networking using standard-based comms Cloud update: remotely update firmware across all your devices Generating $600m annualised free cash flow mbed Cloud mbed Cloud Partners 7 ARM 2017

8 Investment philosophy SoftBank has asked ARM to accelerate investments and to increase risk appetite Rate of investment is discretionary and controlled by ARM s Board Investments remain targeted on delivering long-term, sustainable growth All costs are expected to be financed from IP business revenue streams Over the medium term, during this accelerated investment phase, costs are expected to grow faster than revenues 8 ARM 2017

9 Linking ARM s business model to investments in new technology 9 ARM 2017

10 Revenue 10 ARM 2017 Spreadsheet available from:

11 License revenue $700m $600m $602m $601m $500m $400m $300m $200m $100m $0m FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 ARM license revenue - SoftBank fiscal year 11 ARM 2017

12 Processor royalty revenue $500m $450m $400m $350m $300m $250m $200m $150m $100m $50m $0m 12 ARM 2017 Pre to present ~380 licences ~680 licences signed since Q ~380 ~680 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H Financial years

13 Software and Services ARM supplies products and services that help our partners bring ARM-based devices to market Includes Keil tools, developer boards, customer support and training and new SaaS business mbed Cloud 13 ARM 2017

14 Investments and profits 14 ARM 2017 Spreadsheet available from:

15 How ARM thinks of its investments 80% 10% 10% Product investment 15 ARM 2017 Engineers Research Ecosystem investment Product Marketing Segment Marketing Sales and support Enabling Functions HR Finance Legal IT

16 Increasing R&D = Increasing Headcount ARM intends to double ARM s UK headcount within five years of the acquisition and expand headcount in all regions 10,000 9,000 8,000 7,000 6,000 ROTW UK 5,000 More engineers means ARM will Develop more technology Develop technology faster Help our customers get their products to market sooner 4,000 3,000 2,000 1, Doubled total headcount from ARM 2017

17 17 ARM 2017

18 18 ARM 2017

19 Profits and profitability 1,400m Revenue Total Costs 1,200m IFRS EBIT IFRS Margin 1,000m 800m 45% 40% 35% 30% 25% Over the past 10 years ARM s revenues grew faster than costs Profits grew and profitability edged over 40% 600m 400m 20% 15% 10% At the start of the next phase of investment ARM expects costs to grow faster than revenues 200m 0m 19 ARM Fiscal years Note: Excludes certain one-offs : Write down of MIPS patents ( 100m) : Execution costs associated with SoftBank acquisition 5% 0% This should yield even greater profits in the future

20 Profits, cash generation and use of cash 600m 500m 400m IFRS EBIT Normalised cash generation 300m 200m 100m 0m 0m m - 200m - 300m - 400m 20 ARM m Dividend Buybacks Acquisition related payments IP licensing and other one offs Note: 2016 excludes 66m of SoftBank acquisition related expenses

21 Uses of cash in more detail 140m Dividend 120m 100m 140m 120m 100m Buyback 80m 80m 60m 40m 60m 40m Paused during global financial crises 20m 20m 0m m m 250m 200m Acquisition related payments Mainly Apical acquisition 230m 120m 100m 80m IP licensing and other one offs IP licensing Paying off bridging loan related to Apical acquisition 150m 60m 100m 40m 50m 20m 0m 21 ARM m

22 ARM has over 1.2bn of net cash and no debt 1,200m 1,200m 1,000m 800m 600m 400m 200m 0m ARM 2017

23 Return on Investments ARMv8-A case study ARM incurs R&D costs many years before revenue starts Multiple processors in development Research into 64-bit computing started in 2000 ARMv8-A Development starts Architecture development and processor design First generation of processors ARM 2017

24 Return on Investments ARMv8-A case study ARM incurs R&D costs many years before revenue starts Research into 64-bit computing started in 2000 ARMv8-A Development starts First architecture licensing First processor licensing New processors announced Processor licensing ramps Processor delivery (major revenue recognition trigger) ARM 2017

25 Return on Investments ARMv8-A case study ARM incurs R&D costs many years before revenue starts Research into 64-bit computing started in 2000 ARMv8-A Development starts Architecture royalty starts Processor royalty starts Royalty ramps ARM 2017

26 Return on Investments General case ARM incurs R&D costs many years before revenue starts Research started many years ago New technology development starts Initial development phase New technology announced First technology agreements Investment ramps Technology delivery Recurring revenue starts 26 ARM Revenue continues for many years after the investment phase has turn into a maintenance phase, leading to highly profitably business over time

27 Summary of part one ARM s primary business continues to be very profitable ARM intends to: Increase investment in primary business to accelerate market share gains Invest in new IoT business to create new revenue streams Rate of investment is discretionary and under our control Investments today yield revenues in many years time Costs are expected to grow faster than revenues for the medium term 27 ARM 2017

28 Agenda Part one ARM overview Flexible business model Impact of accelerating investment on P&L Part two Amortisation of intangibles Current technology investments 28 ARM 2017

29 Amortisation of intangibles 29 ARM 2017

30 Amortisation of intangibles ARM s intangibles have been valued at around 5bn / $6.5bn / 700bn Amortised using a straight-line method over the useful life of the asset Amortisation for first eight years will be around 370m per year Technology Customer relationships Trademarks 30 ARM years 13 years 8 years

31 Post acquisition: Increasing investment in the latest technology to accelerate market share gains and to create new revenue streams 31 ARM 2017

32 ARM s main markets Mobile and Consumer Increasing functionality is creating demand for more advanced technology. Automotive and Robotics Increasing software costs is driving need for standard architecture creating opportunity for ARM. Market share in 2016: Mobile 90% / Consumer 65% Market share in 2016: 10% Enterprise and Servers ARM is providing common platform for software across cloud and network. Embedded and Connectivity ARM technology is the leading processor due to low-power, small size (cost) and easy to program. Market share: Networking 17% / Servers <1% Market share: 30% (80% of 32-bit) 32 ARM 2017

33 ARM technology is applicable across many markets Artificial intelligence including computer vision Virtual, augmented and mixed reality Internet of things related technology Hyperscale computing Security 33 ARM 2017 Mobile and Consumer Enterprise and Servers Automotive and Robotics Embedded and Connectivity ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü

34 ARM technology: Recent announcements Artificial intelligence including computer vision Virtual, augmented and mixed reality Internet of things related technology Hyperscale computing Security DynamIQ for accelerated AI Cetus Display Technology Narrow Band IoT Safety-critical IP Microsoft Azure Amazon AWS Processors for secure IOT 34 ARM 2017

35 ARM technology: Recent announcements Artificial intelligence including computer vision Virtual, augmented and mixed reality Internet of things related technology Hyperscale computing Security DynamIQ for accelerated AI Cetus Display Technology Narrow Band IoT Safety-critical IP Microsoft Azure Amazon AWS Processors for secure IOT 35 ARM 2017

36 ARM DynamIQ Multicore redefined New single cluster design 36 ARM 2017 Greater flexibility Redesigned memory sub-system Advanced compute capabilities

37 Accelerating AI adoption everywhere DynamIQ boosting AI/ML performance both on CPU and in system Dedicated processor instructions and optimized libraries for AI Improved access to acceleration More than 50x AI performance boost on the CPU in the next 3-5 years Up to 10x quicker response for accelerators 37 ARM 2017

38 ARM announced Narrow-Band IoT radio IP Narrow-Band IoT is a key technology Forecast NB-IoT market shipments NB-IoT is a cellular communications standard compatible with 5G Enables pre-installed (and pre-paid) connectivity for any electronic device within cellular coverage Evaluation platform Q3 17 Customer silicon Q No installation or set-up by consumer or enterprise. No on-going maintenance costs. ARM acquired two enabling companies New business models for carriers ARM provides its partners a path to produce 5G capable SoCs with Cordio-N RF-to-application NB-IoT low power IP offering 38 ARM 2017

39 ARM technology in Microsoft Azure and Amazon AWS Over 50% of Azure data center capacity can be ARM servers. Every server we deploy will have at least one of these; some will have a lot more. This is a really big deal. Leendert van Doorn Distinguished Engineer at Microsoft presenting the ARM-based server that Microsoft Azure has been using internally James Hamilton, VP and Distinguished Engineer at Amazon presenting Amazon s ARM-based chip at AWS re:invent 39 ARM 2017

40 Q&A