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Assessing the Potential Threat of RISC-V to Arm as it Goes Public on Nasdaq

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Investing in Arm: Considering the Upsides and Downsides

As Arm prepares to start trading on the Nasdaq, investors are evaluating the potential benefits and risks of investing in the British chip designer.

In its IPO prospectus, Arm highlighted various risks including its China business and geopolitical factors, but there’s one potential threat that has gained attention: RISC-V.

RISC-V, pronounced “risk five,” is a competing chip design supported by some of Arm’s own customers. While analysts believe it’s not an immediate threat, Arm itself cautioned that if RISC-V gains traction, it could pose a competitive risk.

Understanding RISC-V

To comprehend RISC-V, it’s important to understand what Arm does. Arm designs an instruction set architecture (ISA) for chips called processors or central processing units (CPUs). These chips serve as the brains of electronic devices.

Arm’s ISA serves as the blueprint for processors used by companies like Apple and Qualcomm. These companies pay licensing fees to Arm for using its technology to build their own chips. Arm also earns royalties when these chips are manufactured and used in end devices. In fact, Arm’s designs underlie processors in 99% of the world’s smartphones.

The Rise of RISC-V

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RISC-V is an entirely different instruction set architecture. RISC stands for reduced instruction set computer. The main difference is that RISC-V is open-source, meaning it’s free to use.

Arm acknowledged in its IPO prospectus that if RISC-V technology continues to develop and gain market support, its customers might choose to utilize this free architecture instead of Arm’s products.

Is RISC-V Gaining Traction?

RISC-V has gained support from major technology companies, many of which are also Arm customers. Google, Samsung, Qualcomm, and Nvidia, for example, are part of a consortium formed in 2020 to develop RISC-V-based technologies.

If this development proves successful, it could create a viable alternative to Arm’s architecture. Arm expressed concern in its IPO prospectus that competitors establishing cooperative relationships or consolidating with each other or third parties (such as the joint venture focused on RISC-V) may have additional resources to develop architectures that directly compete with Arm’s products.

Support for RISC-V was further fueled when Nvidia proposed to acquire Arm for $40 billion in 2020. This raised concerns among other players in the industry who worried about the potential disadvantages if a major customer like Nvidia controlled Arm.

Is RISC-V a Threat to Arm?

Currently, the general consensus is that RISC-V does not pose a major threat to Arm. RISC-V technology is considered far less advanced compared to Arm’s offering.

While RISC-V may be suitable for certain workloads, it lacks the same level of support for more advanced designs. Arm’s advantage lies in its extensive customer base of major tech players, which has allowed the company to establish an ecosystem reliant on its technology.

However, there are concerns that Chinese companies, in particular, might view RISC-V as a cheaper and more appealing alternative, especially if Arm increases its prices. In such a scenario, RISC-V could gain significant traction in China.

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