ARM Holdings: IP licensing to internet of things

• Main Authors: THOMAS, Howard, BHATTACHARYA, Lipika
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2019
• Subjects: Strategy and Execution; IP Licensing Business Model; Core Competence; Internet of Things; Decision Making; Market Segmentation; Business Administration, Management, and Operations; Technology and Innovation
• Online Access: https://ink.library.smu.edu.sg/cases_coll_all/271; https://smu.sharepoint.com/sites/admin/CMP/cases/SMU-19-BATCH [PDF-Pic]/SMU-19-0015 [ARM]/SMU-19-0015 [ARM].pdf
• Institution: Singapore Management University

In the summer of 2016, ARM Holdings (ARM), a British semiconductor IP licensing firm, has been acquired by Japanese conglomerate SoftBank. The acquisition is a strategic leap for Softbank to expand its market outreach into the Internet of Things (IoT) market. Share prices of ARM have soared by 63% just prior to the acquisition. Co-founder of ARM, Jamie Urquhart was, however, worried if this move would be beneficial for the company in the long run? ARM has flourished in the semiconductor industry and paved the pathway for intellectual property (IP) Licensing to become a celebrated business model, further strengthened by an ingenious partnership model and an eco-system. So far, ARM has primarily operated in the processor and consumer electronics industry which typically has a few large players in the market. However, the company’s strategic shift towards the IoT market poses a new set of risks and challenges. The IP Licensing business model and strategy that has worked for ARM in the processor market may not necessarily work for the firm in the IoT market. In the IoT space, applications are diverse, there is no clear leader, and there are many smaller individual players. IP licensing model works well when the processor firm can monitor the sales of end products of large licensee organisations with huge revenues. However, in the IoT market, licensees will likely be a large number of smaller firms with smaller production volumes. Under this scenario, the IP licensing model can introduce prohibitively high monitoring costs. Can ARM continue to use its existing IP licensing business model for the IoT market? How should ARM reinvent its strategy and business model to adapt to its new strategic focus? The case focuses on how an organisation may need strategic transformation to adjust to growth and new strategic impetus. It also delves into how core competence based organisations can utilise their capabilities to build competitive advantage in the market. In addition, the IP Licensing business model, its risks and challenges, and a counteractive eco-system that protects such a business are central to the case. This case can be taught in undergraduate, graduate and executive education classes.