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ARM acquisition has SoftBank aiming for server-chip glory

TAIPEI Japanese internet group SoftBank's takeover of British chip designer ARM Holdings -- a deal valued at $32 billion at the time of the announcement -- could help the Cambridge-based company expand quickly into the data center server market, which is currently dominated by Intel, the world's biggest semiconductor company.

The overall data center business, valued at $110 billion in 2016, will grow steadily at around 5% to 10% in the next five years, according to research company IDC. It provides essential infrastructure for the development of next-generation technologies, including cloud services and artificial intelligence.

While 95% of smartphones in the world use ARM-designed chips, the company has less than a 1% share of the server chip market, which is 99% controlled by Intel.

"The greatest benefit ARM may take away from this deal is that it now may have the opportunity to compete with Intel in designs for server chips with Softbank's support," said an executive at a top Taiwanese chip company.

The executive added that, with SoftBank taking ARM private, the British chipmaker had a better chance to invest aggressively and penetrate more rapidly into the market without having to worry about investors.

Taiwan Semiconductor Manufacturing Co., the world's biggest contract chipmaker, is also working closely with ARM to challenge Intel's virtual monopoly in the data center server market. But Mark Liu, TSMC's co-chief executive, said on July 14 it would not see significant revenue from server chips until 2018.

The Taiwanese semiconductor industry's keenness about the growth potential of the server market was echoed in the positive views of SoftBank founder and chairman Masayoshi Son in London on July 18, when he discussed his plans for the new acquisition.

"For servers, ARM has a small market share and the remaining [market] is owned by Intel; therefore ARM has a great opportunity to increase its reach," Son told reporters.

Son said that ARM's strength in server and data center equipment would be its ability to design energy-efficient chips, which could reduce electricity costs for cloud service providers such as SoftBank.

The Japanese company's efforts to move into the server area could put more pressure on Intel, which continues to face problems in the personal computer market.

For the three months ended in June, Intel's net income more than halved to $1.3 billion from a year earlier, despite revenue growing 3% to $13.5 billion in the period.

Diane Bryant, Intel's executive vice president, told the Nikkei Asian Review in June that the company would continue to lead in chips for servers deployed in data centers, and foresaw a compound annual growth rate of around 14% to 15% over the next five years.

"We have over 20,000 silicon engineers designing those products, and we have over 20,000 process technology engineers that are building next-generation process technology for 14 nanometer and 10 nanometer [chips]. None of [ARM's partners] is able to compete at that scale and to deliver the best every single year," Bryant said.

ARM's server partners include Qualcomm, the world's biggest mobile chip provider, and HiSilicon Technologies, the chip unit of Chinese telecom and networking equipment provider Huawei. AMD, Cavium and Marvell Technology Group are also working with ARM to develop server chips.

Leon Kao, an analyst at IDC, said that while the server market was not as big as smartphones, the field was still very appealing, with possible good returns.

"Though they might not seem as big as the smartphones, servers have the highest margin and profit, as some server core processors could have a price tag up to near $4,000," Kao said.

But it would not be easy for ARM to quickly expand into servers, as the business already has a complete and mature ecosystem centering on Intel, Microsoft, Dell and Hewlett-Packard, Kao said.

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