PART 2 — The Disruptive Story of ARM

What is disruptive then, you might ask? Well, today, according to rumors, Apple is going to publish the timeline for ARM-based desktop and laptop computers. The story of ARM is a truly disruptive innovation story.

The Beginning

ARM’s disruptive journey started out as the go-to platform for mobile processors. The story dates back to the mid-80s (worth reading it!), but with the actual company forming in 1990, that’s when the name Advanced RISC machine was born. One key takeaway, already foreshadowing the potential “we achieve high performance, low code size, low power consumption, and low silicon area”. It’s harder to create software, and by the early 90s, Intel already had the desktop computing market and was on the verge of getting the same dominance in servers (DEC, IBM mainframes, Sun were the key players in the 90s).

The Short Story

ARM and Intel were suppliers too for early smartphones. With early I mean pre-iPhone era smartphones. I can only guess, but probably a low number of shipments, constant innovation pressure, too much competition, and a not so bright future made Intel decide to quit the mobile processor game. Playing from Christensen’s book. The market is small, and the prices are low. Either they couldn’t predict future growth or didn’t care at all. Or thought that when the market is large enough, we can still use our huge pile of cash and exclusive partner positions to negotiate great deals.

Intel tried several times, but just couldn’t compete with ARM on prices and later in the 2010s, performance to power consumption ratio. To give you an idea of how the context changed, or how the different innovation curves (RISC vs CISC) worked out, here are the current size of transistors (often referred to as fabrication process): Intel 10nm, Apple 5nm. This means 1 transistor is double the size for Intel than Apple. Note: TSMC, a semiconductor manufacturer just announced a 4nm fabrication process.

Factors for Success

The advancement in the manufacturing process was made available by the large number of equipment that uses ARM processors. Almost exclusively, every mobile system uses ARM processors. Why does it matter?

Global smartphone sales are 1.5 billion/year, which is owned 100% by ARM. Note: a smartphone has multiple processors and not all processors are ARM processors, Intel tried a comeback with its 5G offering and sold it this year to Apple, again drawing back from mobile processors.

Global PC+Laptop+Server sales? Approximately 280 million.

This market is divided between AMD, Intel, Qualcomm, and a few other players. The bad news? ARM processors are on par with desktop computers, and the only limitation is the different architecture. To put it simply: ARM code will not work on your desktop architecture.

The bad news for Intel? ARM is coming for the high margin server markets…

What fueled this growth?

ARM was from the start the processor with lower consumption potential due to the architecture. Besides, ARM opted to license to multiple manufacturers and processor designers (Apple being one designer, TSMC one manufacturer), fueling innovation in the fabrication process and competition in price.

And Intel not understanding that this is classic Christensen playbook. Everything is obvious in hindsight, and you never know what markets will explode. As an incumbent player, your market will eventually disappear or the market as you know today will be totally different in 5–10–20 years.

Conclusions

Even though Tesla is not an incumbent player, they are preparing for a lot of potential market changes. Autopilot and no car ownership for car-sharing future. Two-way energy usage for grid-independent energy storage. Focusing on software instead of mechanics. These are all independent games or markets that Tesla can step into and holds in its crosshair.

ARM, with the licensing model, can experiment with a foray into several new markets, from AR/VR to servers or spaceship controllers, or smart home, or any other market that focuses on the strengths of the ARM architecture.

To counter such attacks, Christensen suggests creating an independent team or buying such small firms and leaving them independent until the time comes. One thing that can prove fatal in the long run: ignore adjacent markets, just because it’s too expensive to enter and will hurt the bottom line in the short term. Even though he passed away, Christensen’s playbook for disruptive innovation proves its brilliance each and every day. Thank you, Professor!

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