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With Motorola deal, ARM elbows further into cell phone market

The two companies sign a licensing agreement by which Motorola will create chips and software based on ARM's technology.

ARM is reaching out to take over the handset market.

Motorola announced Monday that it has signed a licensing agreement with ARM, the Oxford, England-based designer of power-saving microprocessors. Motorola plans to release chips and software based on ARM's technology in 12 months.

Although Motorola's chips won't start coming out for another year, the deal reinforces what appears to be an inexorable trend toward ARM's control over a large portion of the handset market.

Nokia incorporates ARM chips into its cell phones. Texas Instruments has adopted ARM technology for its Open Multimedia Application Platform, a blueprint for cellular devices that Ericsson and Sony is picking up. On Tuesday, Intel and Analog Devices will announce a digital signal processor that will be coupled with an ARM chip from Intel called XScale.

More than half the world's cell phones contain a processor of some sort from ARM, formerly known as Advanced RISC Machines.

"There is a market for customers who have their products based around ARM, and we want to participate in that," said Jeff Nutt, director of strategic planning for architecture and system platforms for Motorola's semiconductor products sector. Like TI and Intel, Motorola will fuse the ARM processor with other silicon to cut costs.

As for customers, Nutt said that "it is probably a good possibility" that Motorola will use the chips in its own cell phones. Motorola, after all, already manufactures a limited number of ARM chips it sells to its own cell phone division. With Monday's deal, however, Motorola is aiming for a much broader use of ARM's technology.

ARM's reach goes beyond handsets. Within the handheld computer world, Palm has said it will move from incorporating Motorola's Dragonball processor in its devices to an ARM architecture. Handhelds from Hewlett-Packard and Compaq Computer already use ARM chips. The company's chips are also found in a substantial number of MP3 players.

"We see ARM establishing itself like the Pentium or the x86 established itself as the king of PCs," said Max Baron, editor in chief of the Microprocessor Report. "ARM is well on its way to establishing itself in cell phones, especially in cell phones for getting data off the Internet."

The Motorola deal is significant for both its increased sales potential and for its symbolism, said analysts. Motorola remains the world's largest manufacturer of embedded processors, or chips that go into things other than PCs, according to Baron and others. Around 95 percent of the PowerPC chips Motorola manufactures, for example, wind up in communications equipment, not Apple computers.

But some of Motorola's product lines are getting a bit long in the tooth for the portable market. Some of its embedded chips come from an architecture established 20 years ago, noted Cary Snyder, an analyst at MicroDesign Resources, which publishes the Microprocessor Report.

The Dragonball processors incorporated into Palm handhelds run at around 50 MHz. Current ARM chips go at 200 MHz, and Intel will come out with XScale chips later this year that will run at 400 MHz and 600 MHz. This additional speed will allow handhelds and handsets to run more complex applications, such as speech recognition, and process more data at a faster rate.

"It is a very nice defensive move by Motorola," said Baron, who added that ARM has enhanced its processor technology to allow for improved media processing and accelerated Java processing.

The deal "is probably a tacit recognition that there is another standard," said Mike Feibus, principal analyst at Mercury Research. "For the largest, longest-running embedded processor manufacturer to pick up someone else's technology says something."

ARM earns money from licensing, initial sign-up and technology-access fees paid by manufacturers, as well as from royalties related to chip production.

The company earned a pretax profit of $12.76 million (8.8 million pounds) on sales of $38.27 million for the quarter ended Sept. 30. In the same period last year, pretax profit was $6.38 million on sales of $22.76 million.