Inside ARM: a vendor dossier

ARM is a company that has always wanted to be at the very heart of the industry. And with its technology fast becoming something of an industry standard, it's still on course. Kate Hanaghan recently journeyed to the company's new campus...

At ARM's headquarters in Cambridge there is a definite air of conscientious hard graft. Hidden in the corners of the main building's first floor are numerous bright and airy offices filled to the brim with software engineers beavering away at their next chip design.

The company doesn't sell or make chips - it's not another AMD or Intel. What it does is license designs to companies who manufacture the products for sale into various industries.

The company began life as a collaborative effort between Acorn and Apple Computer. Tasked with creating a new microprocessor standard, the organisation was soon spun-off after scooping funding and a first licensee.

ARM's RISC architecture - reduced instruction set computing - is at the core what it does. Its microprocessors perform fewer computer instructions, which means they can operate faster. It's wear it all began for the company - and what led to it focusing on wireless.

The company has several offices in the UK, some in the US, others in Europe and a couple in Japan. Its headquarters in Cambridge have some nice touches. Each time ARM introduces a new design it stashes an empty bottle of champagne from the crate used to celebrate launch. The company displays these nonchalantly in an open plan area resembling a sixth form common room where employees can chat and hold informal meetings.

Running the whole show is one-time engineer and Oxford graduate, Warren East. His frame of mind is like most ARM employees'. He tells me it's not unusual for there to be many cars in the staff car park at 7pm. Similarly, coming into the office over the Christmas break is not out of the ordinary.

So ARM people are hard-working and committed - but they're also brainboxes.

"We're an IP [Intellectual Property] company. We have to employ intellectual types, who are perhaps even eccentric, to maintain our winning position," says East.

In short, ARM seeks to employ a certain kind of person. When taking on new recruits the most important qualities aren't knowledge and skills but intelligence and attitude.

"We're not interested in having lots of heroes - if you get stuck, ask for help because that way ARM succeeds quicker," he says.

I was at the Cambridge headquarters on an interesting day. The day before, investment bank UBS Warburg had changed its rating of ARM stock to a 'sell', prompting fears the chip designer would fall out of the FTSE100. It since has, despite East's attempts to reassure the City.

UBS was concerned ARM's revenue growth was slowing alongside a decline in rate of growth in average licence fees.

While East admits the going doesn't look too good for short term investors he argues the company has only just scratched the surface of a market that is vast and includes everything from mobile phones to in-car safety devices.

If East is Robin, then Robin Saxby - the company's chairman and full time networker - is Batman. The dynamic duo spend much of their time talking to shareholders, customers and investors. Indeed, Saxby is arguably ARM's best-known executive, as its erstwhile CEO and the man at the helm at the time of its IPO.

ARM has employed a strategy of developing generic designs that can be applied to a number of vertical markets. So while its most dominant market is wireless, it has a hand in markets such as automotive, consumer, storage and security.

Being a company that deals in intellectual property doesn't come without its hazards. As the company's profile has increased, East argues attempts by competitors to either infringe upon the company's patents or accuse ARM of doing so have become more frequent. But he accepts this and sees it as an opportunity: "We would rather turn those people into customers and partners than allow the lawyers to earn money from it."

There's no real escaping the fact that the company relies on semiconductor companies for 80 per cent of its revenues. And as East put it himself: "I still can't see when [the market] is going to turn up."

As for the next 12 months, ARM will be stepping up its presence in segments other than wireless, which currently accounts for 50 per cent of its royalty revenues.

While East has set his sights on creating a monster of a company he does add: "ARM is going to be much more than the Microsoft of the future. Standardisation is a good thing but our approach is partnership-oriented."