For more than three decades, Arm Holdings has occupied a peculiar position in the semiconductor industry: indispensable yet undercompensated. The British chip designer’s architecture powers virtually every smartphone on the planet, runs inside billions of Internet of Things devices, and is increasingly finding its way into data centers and automobiles. Yet the company has long collected only modest royalties — often just pennies per chip — while its licensees, from Apple to Qualcomm, have reaped enormous profits from the silicon built atop Arm’s blueprints. Now, under the aggressive stewardship of SoftBank and CEO Rene Haas, Arm is making an unmistakable push to capture a far larger share of the value it helps create.
The company’s ambitions have come into sharp focus in recent months, as Arm has moved simultaneously on multiple fronts: raising royalty rates, designing its own chips, and pursuing vertical integration strategies that could fundamentally reshape its relationship with the ecosystem it built. As The Economist reported, Arm wants a bigger slice of the chip business — and it is willing to risk alienating longstanding partners to get it.
From Licensing Powerhouse to Silicon Contender: Arm’s Strategic Pivot
Arm’s business model has historically been elegant in its simplicity. The company designs instruction set architectures and processor cores, then licenses them to chipmakers who incorporate the designs into their own products. For this intellectual property, Arm collects an upfront licensing fee and a per-unit royalty, typically ranging from one to two percent of the chip’s selling price. It is a model that has generated steady revenue — Arm reported $3.23 billion in revenue for fiscal year 2024 — but one that has left the company capturing only a fraction of the hundreds of billions of dollars in annual chip sales its technology enables.
SoftBank, which took Arm private in 2016 for $32 billion and then relisted it on the Nasdaq in September 2023 at a valuation that has since swelled past $150 billion, has made clear it expects a far greater return on its investment. Masayoshi Son, SoftBank’s founder, has spoken repeatedly about positioning Arm at the center of the artificial intelligence revolution. That vision requires Arm to move beyond its traditional role as a behind-the-scenes licensor and become a more direct participant in the chip value chain.
Royalty Hikes and the Tension with Licensees
One of the most immediate and contentious elements of Arm’s strategy involves raising royalty rates. According to The Economist, Arm has been pushing to increase the royalties it charges on chips that use its technology, particularly as those chips move into higher-value applications like data center processors and automotive systems. The logic is straightforward: a server chip selling for thousands of dollars generates far more value from Arm’s IP than a $5 microcontroller, and Arm believes its compensation should reflect that disparity.
But the push has not been universally welcomed. Qualcomm, one of Arm’s largest and most important licensees, has been locked in a bitter legal dispute with Arm over licensing terms. The conflict, which went to trial in late 2024, centers on whether Qualcomm’s acquisition of chip startup Nuvia — whose founders were former Apple chip architects — entitles Qualcomm to use Nuvia’s Arm licenses or requires a new, presumably more expensive, agreement. A jury found largely in Qualcomm’s favor on the narrow question at trial, but the broader licensing dispute remains unresolved, and Arm has signaled it may pursue further legal action. The case has sent a chill through the industry, as other licensees watch closely to see whether Arm can successfully extract higher payments.
Designing Its Own Chips: The Move That Could Change Everything
Perhaps more consequential than royalty adjustments is Arm’s reported move into designing complete chips — not just the processor cores and architectures that others incorporate, but full system-on-chip designs that could be manufactured by foundry partners like TSMC. This represents a dramatic departure from the company’s historical approach and carries significant strategic risk. If Arm begins competing directly with its own customers, it could undermine the trust-based ecosystem that has been the foundation of its business for decades.
Reports have indicated that Arm is developing custom chip designs aimed at the data center market, where demand for AI inference and training processors has exploded. The company’s Neoverse platform, which provides server-grade processor cores, has already gained traction with companies like Amazon Web Services, which uses Arm-based Graviton processors in its cloud infrastructure, and Microsoft, which has developed its own Arm-based server chip called Cobalt. By offering complete chip designs, Arm could serve customers who lack the engineering resources to design their own processors but want alternatives to x86-based offerings from Intel and AMD.
The AI Imperative Driving Arm’s Ambitions
The artificial intelligence boom has created both an opportunity and an urgency for Arm. While Nvidia dominates the AI training market with its GPU-based platforms, there is a rapidly growing market for AI inference — running trained models to generate predictions and outputs — where Arm-based processors are increasingly competitive. The company’s energy-efficient architectures, originally designed for battery-powered mobile devices, turn out to be well-suited for inference workloads where performance per watt is critical.
Arm’s most recent earnings reports have reflected this momentum. The company has seen strong growth in its royalty revenue from cloud and networking applications, and its licensing revenue has benefited from new agreements with companies building AI-focused chips. CEO Rene Haas has emphasized on earnings calls that Arm’s total addressable market is expanding rapidly as its architecture moves beyond mobile into automotive, industrial IoT, and data center applications. The company estimates its addressable market could reach $250 billion by the end of the decade — a figure that makes its current revenue look like a rounding error.
SoftBank’s Vision and the Question of Vertical Integration
Behind Arm’s strategic evolution stands Masayoshi Son, whose ambitions for the company appear to extend well beyond incremental royalty increases. SoftBank has reportedly explored the possibility of Arm acquiring or partnering with other semiconductor companies to build a more vertically integrated operation. Son has spoken publicly about investing $100 billion or more in AI infrastructure in the United States, and Arm is central to that vision.
The potential for vertical integration raises profound questions about Arm’s future identity. The company has thrived as a neutral platform — a Switzerland of the chip world — that licenses its technology to all comers without favoritism. If Arm begins designing and selling its own chips, or if it becomes too closely aligned with SoftBank’s broader investment portfolio, that neutrality could erode. Companies like Apple, Samsung, and MediaTek might accelerate efforts to develop alternative architectures, and the open-source RISC-V instruction set — already gaining traction in certain market segments — could benefit from any industry backlash against Arm’s expanding ambitions.
RISC-V and the Competitive Pressure on Arm’s Flanks
The rise of RISC-V represents perhaps the most significant long-term competitive threat to Arm’s dominance. Unlike Arm’s proprietary architecture, RISC-V is an open-source instruction set that anyone can use without paying licensing fees or royalties. While RISC-V processors are still relatively immature compared to Arm’s offerings — particularly in high-performance applications — the architecture has attracted significant investment from companies in China, where geopolitical tensions have made reliance on Western-controlled IP increasingly uncomfortable, as well as from Western companies seeking to reduce their dependence on any single architecture provider.
Arm’s aggressive moves on pricing and vertical integration could inadvertently accelerate RISC-V adoption. If licensees feel squeezed by higher royalties or threatened by Arm’s entry into chip design, the economic calculus of investing in RISC-V alternatives becomes more attractive. This dynamic creates a delicate balancing act for Arm: it must extract more value from its ecosystem without pushing its partners toward the exits.
What Arm’s Transformation Means for the Broader Semiconductor Industry
Arm’s strategic shift is unfolding against a backdrop of enormous change in the global semiconductor industry. The CHIPS Act in the United States, similar legislation in Europe and Japan, and massive private-sector investments in AI infrastructure are reshaping where and how chips are designed and manufactured. In this environment, companies that control critical intellectual property — as Arm does — wield extraordinary leverage.
The coming years will determine whether Arm can successfully navigate its transformation from a quiet, behind-the-scenes licensor into a more assertive, vertically integrated chip powerhouse. The risks are substantial: alienating key partners, inviting regulatory scrutiny, and potentially undermining the ecosystem dynamics that made Arm dominant in the first place. But the potential rewards — capturing a meaningfully larger share of a multi-hundred-billion-dollar market at the heart of the AI revolution — are equally enormous. For an industry accustomed to thinking of Arm as the invisible foundation beneath their products, the message from Cambridge is unmistakable: the architect wants to be paid like a builder.