ARM’s core business model
However, even if you discount all of the above, ARM Holdings plc (NASDAQ:ARMH)’s core business model makes it the real winner at the end. This is because the company does not manufacture its own chips at all, rather its licenses its chip designs to a wide range of companies that include QUALCOMM, Inc. (NASDAQ:QCOM), Samsung, and NVIDIA Corporation (NASDAQ:NVDA). These companies then customize these chips as per their needs, and these customizations, in future, are sure to take care of any design modifications that are made by their bigger rival Intel. The market dynamics obviously point in that direction, and the underlying winner will be ARM.
Not having to manufacture chips also means that ARM does not have to own foundries, resulting in low capital expenditure, giving it a distinct advantage over foundry-owner Intel. And by the way, ARM Holdings plc (NASDAQ:ARMH) also gets a royalty fee for each and every chip unit shipment, creating a truly win-win situation for itself that should continue to pay rich dividends for a long time to come.
Some parting thoughts
Having said that, ARM does have to be careful with a few aspects with regard to its bigger competitor. Intel Corporation (NASDAQ:INTC)’s first tablet win may be a signal that the company is planning to make further inroads, particularly in the highly lucrative field of mobile processors where sheer volumes hold a lot of potential for the company. And if its newest collaboration with Samsung proves to be a success, there’s no reason why future Samsung handsets will not feature Intel processors.
That would be a big step into ARM territory indeed, which is again why ARM needs to watch out for product developments surrounding Intel’s new Silvermont processors that are meant for the mobile market. In fact, ARM will have to hasten the commercial availability of its latest processor designs, as timing is everything if it wants to compete with a cash-rich peer such as Intel.
At the same time, ARM Holdings plc (NASDAQ:ARMH)’s aspirations for grabbing a larger share of the server market may be thwarted by Intel Corporation (NASDAQ:INTC)’s Haswell chip design, that exclusively focuses on delivering higher performance while consuming much less power than before. That’s something which ARM was reputed for, until now.
Honestly speaking, there’s no end to this game in a fast-changing technological world, and the real winners at the end should ultimately prove to be ARM’s inherent business model, coupled with its sheer diversity of product applications and solid lead in the LTE-enabled chipset space. ARM Holdings plc (NASDAQ:ARMH), as always, is a stock that should continue to pay off handsomely in the long-term and truly deserves to remain a part of your tech portfolio.
Subhadeep Ghose has no position in any stocks mentioned. The Motley Fool recommends Intel Corporation (NASDAQ:INTC). The Motley Fool owns shares of Intel and QUALCOMM, Inc. (NASDAQ:QCOM).
The article Should You Doubt This Company’s Prospects? originally appeared on Fool.com.
Subhadeep is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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