ARM Holdings plc (ADR) (NASDAQ:ARMH) looking to automotive industry to drive growth
Where does ARM Holdings plc (ADR) (NASDAQ:ARMH) expect its growth in the coming years to come from? Automotive industry, the management says. The first reason ARM is targeting the car semiconductor market is that smartphone saturation has led to limited demand for smartphone chips and the company must now look for growth outside that market. The second reason is that automotive is a promising market given that demand for car chips is expected to increase 50% over the next five years to $15 billion.
ARM Holdings plc (ADR) (NASDAQ:ARMH) designs chips and licenses the designs to third-party manufacturers. You can find ARM-based chips in many smartphones today, including Apple’s iPhones. Currently, selling chip designs to smartphone industry accounts for about 45% of ARM’s annual revenue.
As smartphone penetration reaches peak levels in key markets, overall demand for smartphones has slowed and the slowdown is having a negative impact on ARM’s revenue in the industry. In the latest quarter, ARM reported chip royalty revenue that missed consensus estimate by 4%. That further demonstrated how tough it has been to make money in the smartphone industry and why a shift in strategy is necessary.
ARM Holdings plc (ADR) (NASDAQ:ARMH) is eying the $15 billion automotive semiconductor market. The company has recently signed multiple agreements that are expected to open doors to sell its chip designs to automotive technology industry. However, the company needs to sign more automotive-themed deals to increase its chances of dominating the market. Because every chip designer is looking to escape slowdown in the smartphone industry, competition in automotive semiconductor market is likely to be intense.
Autonomous driving and in-car infotainment systems are some of the areas seen expanding semiconductor ports in the car industry. It is estimated that on the average each vehicle will have $150 worth of chips by 2020. That is almost seven times the value of chips found in an average smartphone.
Extracting more juice from smartphone market
In the meantime, ARM Holdings plc (ADR) (NASDAQ:ARMH) is working to fuel demand for its smartphone chip designs.
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