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Arm has torn up the business model that has made it one of the most successful British tech companies by making its own silicon for the first time.
Until now Arm has been a chip designer, letting other companies do the hard work of actually manufacturing the silicon. However, the seemingly ceaseless demand for AI hardware has tempted Arm to start making its own silicon, starting with the Arm AGI CPU.
“AI has fundamentally redefined how computing is built and deployed,” said Rene Haas, the company’s CEO in a statement. “Agentic computing is accelerating that change. Today marks the next phase of the Arm compute platform and a defining moment for our company.”
Arm’s move into manufacturing is not without risk – and potential rewards. The company has so far thrived as a chip designer, licensing its processor blueprints to companies such as Qualcomm, Apple, Samsung, Nvidia and many others. It’s a high-margin business, with the company achieving a profit margin of 98% in its most recent quarter.
The downside for Arm has been the revenue from licensing chip designs is relatively modest. In its most recent quarter, Arm posted revenue of $1.2 billion with net profit of around $240 million. For comparison, Nvidia (which designs and sells its own chip hardware) achieved revenue of $68 billion and net income of $43 billion in its most recent quarter.
The move into making and selling its own processors will dramatically lower Arm’s profit margins, but could significantly boost revenues. Haas said the AGI CPU could achieve operating margins of around 30%, according to a report in the FT, but the company is expects to be earning five times its current revenues by 2031.
Certainly, it appears to have no shortage of customers lining up for the AI processors. Meta will be the company’s “lead partner and co-developer”, but OpenAI, Cloudflare and SAP are among the list of companies that will deploy the new hardware, according to Arm’s statement.
It claims the move into manufacturing is also backed by companies such as Nvidia, Google and Amazon, which is interesting given that it’s now pitching itself into competition with all of those companies. TSMC will make the processor on Arm’s behalf.
The markets seem to have reacted positively to the news, with Arm’s share price jumping sharply when the news was first announced.
In terms of the CPU itself, the processor will have up to 136 Arm Neoverse V3 cores with 6GB/s memory bandwidth per core. It will have a TDP of 300 watts, with a “dedicated core per program thread enables deterministic performance under sustained load, eliminating throttling and idle threads”.
The company claims the processor supports a high-density 1U server chassis that, with liquid cooling, can deploy more than 45,000 cores per rack. Arm says this will deliver more than double the performance per rack of x86 CPUs.
