Seeking Alpha
Alternative energy, solar, energy efficiency, grid modernization
Profile| Send Message| ()  

by Michael Kanellos

The long arm of ARM is making its name known in the smart grid, too.

Microprocessors based around designs from England's ARM Holdings (ARMH) are becoming an increasingly frequent presence in the smart grid world and seem destined to loom larger in the future. A line of modular system-on-a-chip processors for smart meters from Europe's Accent that came out this week are based around a processor core called the ARM Cortex M-3. Accent makes processors for Itron's (ITRI) Centron meters. The new integrated chips cut the number of parts needed for a smart meter by half and the cost by 30 percent.

Grid Net, which designs and licenses WiMax smart meter, employs ARM cores in its products. General Electric (GE) resells Grid Net's meters. Ember puts ARM chips into its networking processors. IAR has a deal with ARM and IAR supplies development tools to Landis + Gyr. On-Ramp Wireless similarly relies on ARM cores for its long-range communication grid chips.

Other longtime ARM fans include Freescale (FSL), which makes a plethora of networking silicon for the grid, and Samsung (GM:SSNLF), which wants to be one of the leading companies in renewable energy, Cypress Semiconductor (CY), which is moving into building management and waste heat recovery and National Semiconductor (NSM). The list goes on.

ARM's early position and potential dominance in the market comes as a result of three factors. First, the company is the biggest name in embedded microprocessors. Over 90 percent of the world's smart phones and the vast majority (80 percent plus) of regular cell phones run on chips based on ARM designs. The company also enjoys a huge footprint in industrial machinery, digital cameras, security cameras, etc. Thus, smart meter makers have a lot of silicon and software to choose from to get to market quickly. ARM chips are particularly well regarded for their low energy consumption.

Second, ARM and its partners are coming into a market starving for performance. The Cortex M3 is a 32-bit processor, which means it can handle far more memory and thus undertake far more complex tasks than the 8-bit microprocessors commonly found in meters and a lot of other grid equipment today. The 32-bit microprocessors were pretty much the standard in PCs until the first half of the decade, when Advanced Micro Devices (AMD) and Intel (INTC) began to produce more 64-bit chips.

"A lot of people are interested in improving from 8 to 32 bits," said Edward Pazino, director of marketing at Accent. "ARM has picked up quite a bit of popularity."

But don't think the meters get shortchanged by being 32 bits in a 64-bit world. Most computer users only really take advantage of 32-bit-like performance.

Third, and perhaps most importantly, ARM remains one of the few semiconductor companies to really license its intellectual property well. ARM does not make chips. Instead, it designs processor cores and then licenses the blueprints to companies, which go on to produce chips under their own names.

Most companies that try this fail. Rambus (RMBS), which created a high-speed form of memory, has been embroiled in lawsuits for over a decade. Tessera Technologies (TSRA) started collecting royalties for its chip packaging technology after it emerged victorious in a few major lawsuits.

ARM, by contrast, has enjoyed success after success in many ways by emphasizing diplomacy and customer service. At times, it has had nearly as many employees as support centers.

"We have something like 2,200 global offices. We're in Shanghai, we're in Tokyo, we're in Taipei, we're in Tel Aviv," former CEO (Brave) Sir Robin Saxby told me in 2002. "We need to be close to our customer base in real time and to make something suitable for reuse as an IP company. You've got to design something that everybody can use in lots of different ways. You can say that to support the product is 10 times more expensive than to invent the product."

Saxby has since retired, but the company continues to function on the same principles. At the time, ARM only had a 70 percent share in phones.

This last characteristic -- "plays well with others" -- is also the one that many fear could disappear if the somewhat hard-to-believe rumors about Apple (AAPL) considering an acquisition of ARM come to pass.

Apple actually helped found ARM and was one of its first investors. (Guess what chip was inside the Newton?) However, the two companies have since taken divergent paths. Apple likes to control things. It also does not like to license technology. One of the first actions Steve Jobs took when he became CEO back in the late '90s was to kill the OS licensing program. ARM, of course, lives to license.

ARM CEO Warren East told the Guardian not to put too much stock in the Apple rumor.

"Exciting though it is to have the share price pushed up by these rumors, common sense tells us that our standard business model is an excellent way for technology companies to gain access to our technology. Nobody has to buy the company," he said.

It would be a difficult marriage all the way around -- sort of like when Mia Farrow married Joey Bishop. (Made you look: it was really Frank Sinatra, but still a monumentally bad combo.) I don't put much stock in it.

But I do put stock in this: when it comes to smart meters, one of the more prominent figures will be the silent Englishman.

Disclosure: No positions

Source: ARM Holdings: The Quiet Giant in Smart Meters