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Unbundled Business Models: Arm’s Focus on IP

This is my first not-technical blog post more towards the business side which I know very little about but still worth trying.I will be discussing the “unbundled business model” and why ARM is focusing only on designing IP cores.I came across the term unbundled business model in a book called “Business model generation” by Alexander OsterWalder and Yves Pigneur.

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Which is a fantastic book and they really take the reader through the entire planning process of a business or business model generation.

As most electronic engineers will be aware, ARM holdings which stands for Advanced RISC Machines (Acorn RISC Machines at time of foundation) is a British Intellectual Property licensing company. So basically they license their proprietary processor cores to semiconductor companies like Apple, texas instruments, Freescale, Qualcomm, NVIDIA etc. These cores are specifically popular in mobile computing because of their low power consumption characteristics. In fact almost all of the recent smart phone processors are based on an ARM core.

Err I guess we are diverting to electronics again, coming back to the company. So the company has a unique business model, unlike other semiconductor companies like Intel or microchip who design and manufacture their processors. ARM is specialized in designing the barebones of the processor, the core (which technically is a bunch of hardware synthesis files containing thousands of lines of Verilog code, or any other language) and gives out this code to semiconductor companies to let them manufacture their own customized processor.

Unbundling Business Models: The term “unbundled corporation” was coined by John Hagel and Marc Singer and it suggests that there are three types of businesses: Customer Relationship businesses, product innovation businesses and Infrastructure businesses. These sectors require different skill sets are separate entities of a corporation or ideally a separate business itself. The role of Customer Relationship business is acquiring customer and building relationships with them.

Similarly product innovation businesses are involved in development of new products and services, while the role of infrastructure businesses is to manage the platform for high volume, repetitive tasks like assembly lines, logistics etc. ARM can be effectively placed into the product innovation category; they are focused on development of their IP cores for which they are well-known for. This keeps the company’s operations aligned with the target which is to build low-power high performance cores.

Their business is centered on engineers, talented and creative minds which design their products and keep them ahead of the competition. Customers are not their focus, well at least not directly, customer relationship are taken care at multiple levels by the chip manufacturer, the equipment manufacturer and then the end-user company. This is a win-win situation as the result is a better product and customer satisfaction. Another company which recently unbundled the business is Dell Inc. hich shifted its focus from manufacturing to customer relationship and marketing. Reason being contract manufacturers like Clevo produce computers more cheaply as their entire focus is on finding efficiencies in manufacturing. This means Dell can focus on the brand and building customer relationship which is a much more robust business plan. It is the basic question “What business are we in? ” and finding what is the key business activity.

If we try to manage activities across too broad a waterfront, we run a risk of losing our edge across more and more of his waterfront. The business model has worked out well for ARM and in year 2010, 6. 1 billion ARM based chips were sold. ARM’s goal is to have ARM-based processors in more than half of all tablets, mini-notebooks and other mobile PCs sold by 2015. Leave your comments below about what you think about the ARM business model and by the way check out my project Portoscope an open source mini oscilloscope, it runs on an ARM based processor

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