Rumored Apple buyout of ARM would be messy

An Apple acquisition of chip designer ARM--a rumor that swirled over to the U.S. on Thursday--would not be pretty.

Brooke Crothers Former CNET contributor
Brooke Crothers writes about mobile computer systems, including laptops, tablets, smartphones: how they define the computing experience and the hardware that makes them tick. He has served as an editor at large at CNET News and a contributing reporter to The New York Times' Bits and Technology sections. His interest in things small began when living in Tokyo in a very small apartment for a very long time.
Brooke Crothers
3 min read

The idea of Apple buying chip designer ARM, a rumor originating in London that swirled over to the U.S. on Thursday, would be messy, pricey, and unpopular.

None of those reasons necessarily preclude such a buyout, but simply make it more difficult than snapping up tiny chip designers like PA Semi or Intrinisity--which Apple has done already without hardly lifting a finger.

And ARM CEO Warren East has chimed in with less-than-supportive comments, according to the Guardian. "Exciting though it is to have the share price pushed up by these rumours, common sense tells us that our standard business model is an excellent way for technology companies to gain access to our technology. Nobody has to buy the company."

Let's look at three facets of the fallout following a hypothetical acquisition.

Messy: It would probably attract regulatory scrutiny somewhere in the world, if not the U.S., because ARM, though relatively small, holds the keys to the cell phone chip kingdom. ARM licenses technology to virtually every large chipmaker, including Texas Instruments, Qualcomm, Samsung, Freescale, Marvell, and Nvidia--all suppliers of the core silicon in smartphones and portable media players. The upshot: ARM technology is in virtually every smartphone in the world and will be in many of the tablets (e.g., Apple's iPad) that hit the market over the two years.

"Historically, Apple makes bite-sized acquisitions and then they customize to get better bang for the buck," said Ashok Kumar, an analyst at Rodman & Renshaw. "Why not just focus on this core expertise? Silicon is not in their DNA and, besides, it's a commodity these days," he added.

Unpopular: A corollary to messy, this would trigger a chain reaction of events that would not be healthy for the ARM chip architecture, as CEO Warren East intimated above. No matter how many assurances Apple gave about respecting the integrity and independence of ARM, every chipmaker would be immediately wary.

"If Apple owned ARM, Apple could exert on undue influence on future directions of ARM," said Nathan Brookwood, principal analyst at Insight64. He continued: "One of things that allows chip architectures to become standards is that all vendors have equal access to them. (And) if you're HP, for example, and thinking about doing something with an ARM chip and ARM is now a subsidiary of Apple. Aren't you going to be a little nervous that your plans could be compromised?" he said.

Quotes in the London Evening Standard don't paint a pretty picture, either. The newspaper quoted a London trader, saying: "A deal would make a lot of sense for Apple. That way, they could stop ARM's technology from ending up in everyone else's computers and gadgets." Those are fighting words for rivals.

Pricey: Though Apple is sitting on about $40 billion in cash and investments, ARM is not cheap. Estimates range up to $8 billion to buy it outright. And the obvious question is, why pay all of that money when you can license the technology for a relative pittance? Apple could, of course, choose to buy a non-controlling stake in the company, as it has done in the past.

Note that both Kumar and Brookwood see an acquisition as unlikely.