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Because I mean what's cool is like, it is literally the arm 610 that was developed with Apple for the Apple Newton is the core of all the arm processors. Welcome to season 4 episode 2 of acquired the podcast about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenpill. And we are your hosts. Today we are going to explore a topic that is flown relatively under the radar despite being the primary component of every single one of our phones. Soft banks, $32 billion purchase of the British-based arm holdings. For folks that listen to the previous episode that we did on Soft Bank, you know they were once a Japanese telecom and multinational conglomerate now that has a close to $100 billion fund. And that they have created massive disruption in the startup landscape. And here we are diving into kind of the deal that started at all and with just an essential piece of technology that we all use every single day. Listeners, you know that a few months ago we started our limited partner program for folks to go deeper on technology, startups and VC topics with us. David, I wanted to say that I'm particularly pumped where we landed in our last episode on investment thesis on ambient computing and processing happening everywhere as sort of the next enormous technology wave. So I think it's super relevant to this episode and we will find out why as we dig in. So if you're interested or you just want to support the show and like what we do, you should click the link in the show notes to consider becoming a prestigious acquired limited partner or go to Kimberly Light dot FM slash acquired our presenting sponsor for this episode is not a sponsor but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founders so we knew there's a natural fit. We know the host of founders well David Senra. Hi David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together and then they say it's like the best curriculum for founders and executives. It really is we use your show for research a lot. I listened to your episode of the story of a few of Rita before we did our Sony episodes is incredible primer. You know, he's actually a good example of why people listen to founders into acquired because all of history's greatest entrepreneurs investors they had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence Steve jobs talked about him over and over again if you do the research and I think this is one of the reasons why people love both of our shows and there's such good. Compliments is on acquired we focus on company histories you tell the histories of the individual people you're the people version of acquired and where the company version of founders listeners. The other fun thing to note is David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin land from a biography that David did David. It was the third fourth time you've done Polaroid. I've read five biographies of Edwin land and I think I've made eight episodes of them because in my opinion, the greatest such a pretty to do it. My favorite entrepreneur personally is Steve jobs and if you go back and listen to like a 20 year old Steve jobs he's talking about Edwin lands my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is the people may die, but the ideas never do. And so Edwin land had passed away way before the apex of Apple, but Steve was still able to use those ideas and now he's gone and we can use this ideas. And so I think what acquires doing what founder trying to do as well is find the best ideas in history and push them down the generations make sure they're not lost history. Love that. Well listeners go check out the founders podcast after this episode you can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired so for more indulgence on companies and founders go check it out. All right David I heard a rumor that you have one more thing for listeners indeed one more thing. We passed a million downloads in the lifetime of acquired. Huge milestone and to celebrate we are going to do you heard it here first a worldwide virtual acquired meet up so we're going to host this in zoom. Ben and I are going to be on video and we'll have everybody else in the slack community we've got a bot installed that's going to do aggregate AMA questions and we're all going to hang out so we're going to do it on February 21st 2019 at 530 PM Pacific time. We thought that would give everybody you know at least in the US be 830 East Coast 530 Pacific and it's 930 AM in China for our listeners in China. So be there be on slack and on zoom and we will all hang out then David it's time it's time indeed well today we're going to be talking about arm holdings and we're going to go literally from Isaac Newton to the Apple Newton to masa and soft bank and beyond. It's quite the scope man the first thing for listeners to know before we even dig in here this chip company manufacturers a total of zero chips and in many cases they they don't even design them either. Yeah well we head to the prestigious and well known Silicon fan in Cambridge England home of Isaac Newton in venture of modern physics at Cambridge University the time is 1980 and in 1980 in England the BBC the British broadcasting corporation which controls you know the most popular radio and television stations across Britain and as a government entity. They've teamed up with the UK Department of Industry and Department for Education and they're launching a major initiative that they're calling the BBC computer literacy project and the goal is to educate the public and in particular young people at this time about computers and train them for the coming personal computer revolution that everybody thinks is right around the corner and indeed it is. So they create a nationwide television series that they call the computer program get it the computer program on television that they show on I think it was on BBC to the whole country to serialize program about how computers work but the cornerstone and the really cool ambitious thing that they're doing is they want to put new micro computers true like personal computers for the first time into schools all around the country for children to learn and play. So this is like super similar to this is like a government version of Apple's strategy in the US at the time of getting Apple to in to schools so that kids can learn and play on computers with the idea that like eventually they'll grow up and then keep using Apple as they grow up Google strategy today with the Chromebooks indeed that I think is working really well. Yeah, I think so too. The BBC together with the government puts out a call for bids across all UK technology companies at the time to create this computer that they're going to put into schools and they end up awarding the contract to a little company in Cambridge called a corn computers. Now if you're a real computer history buff you probably know about a corn computers but what what were they so they started life in Cambridge I believe they are initially called the Cambridge processing company or something like that they made CPUs it was a play on CPU they be processors for other companies but by this time they started making their own fully integrated systems you know like the Apple too and supposedly they chose the name acorn because it sounded like Apple. But it was ahead of it in the telephone dictionary and directory so when people were looking up computer suppliers in the telephone directory they would see acorn before Apple. Maybe that's how they won the bid. So they win the contract and they get to work on the device they're hard to work at it they know this is like a huge opportunity for the company in December of 1981 they start shipping it to schools around the world. And it's branded as the BBC micro and this is like a legendary computer in computing history like literally a whole generation of British kids grow up with this as their first you know exposure to computers. They end up selling over one and a half million units almost all in the UK which is like super good considering the Apple too was on sale for over 16 years and only sold 6 million units so like man the power of like government sponsored programs crazy so another thing though happened in 1981 that was pretty important turned out to be far far more important than the BBC computer program which was that IBM introduced their first IBM PC in the American market and and the IBM PC was the first like personal computer that was you know because remember computers before then they were like in professional and business use it was the whole client server model you know it was terminals termally into the main frames all that like think about like what NASA was designing like the Apollo program on you know it wasn't personal computers so when IBM introduces the PC and it's targeted at business and professional users this is really like everybody in the industry now is like OK wow like this is opening up this whole huge market where like it's beginning of like software is eating the world right like now computers are going to be on every desk of every worker in every industry you know in the world at some point with IBM you know power by B.M. behind this so a corn realizes this and they're like OK you know like the BBC micro is great this has been great for our company but like it's an 8-bit micro computer like it's a personal computer but it's nowhere near powerful enough to compete with the IBM PC we need to we need to create our professional computer so they start a project they call it the Archimedes project this must be like a legacy of you know Cambridge and academia and like having these you know a scientist and mathematician names they realize though the processor that they've been using in the BBC micro they hadn't designed it it was an off the shelf 8-bit processor from a firm called mass technology was called the 65-02 this is when processor had really cool names like 65-02 yeah super super cool miss these days yeah I know I know although arms naming schemes are not really much better but those end up those don't end up becoming consumer brands the way that like you know a 11 X or something like that does although we've completely gone back never mind my point is completely destroyed by the fact that Apple is calling chips like it was it made sense when it was like a 5-0 is a couple like so that actually means nothing yeah I know but they actually don't mean anything it's a marketing brand that doesn't it's not a modifier on the name of the chip which is like a 10 or 11 it is just a it's kind of like a you know macOS 10.4 leopard or I think that's wrong but yeah anyway too many digressions too many digressions anyway so eight corn here's that intel often California you know their processor company everybody knows about at this point they are working on the perfect processor that they can use in their new Archimedes project it's it's going to be a 16-bit processor it's getting a ton of buzz and it is this is like a super famous in computer history this is the 82 86 processor which would eventually become just the 286 which successors would be the 386 the 46 and then the Pentiums and then every modern intel chip that we know today this was the first the X86 architecture if you will indeed this is the first of the X86 so eight corn's like oh cool like a Intel like we want to you know be a customer to you guys can you like a you know ship us over some so we can build some reference you know PCs and star working with you guys and for some reason and this is going to go down as like one of you know there a few of these moments on acquired of like history turns on like a knife point you know whether it's blackbuster or or here Intel Intel makes one of the worst business decisions in history in all of business history and says no you guys you see micro come on your some like little PC you know company and in Cambridge you know England not even Cambridge Massachusetts like we don't care about you guys surely nobody will ever you know decide to do something on their own when we tell them no and then eventually lead to our own demise I mean we're Intel like who else is going to make you know high performance computing microprocessors in the world except us Intel I notice you said high performance so I think that probably is still true well depends how you define high performance so a corn they are they're kind of out of options and they're like well you know what can we do what do we have the one thing they have that basically you know very few other computer companies in the world even really apple at this point have they have a ton of super super smart physicists and engineers and early in the burgeoning field of computer scientists students from Cambridge University where they're located that they've employed you know either is interns or full time staff and these people are like super talented and they decide you know what maybe we can just build our own microprocessor like we started as a microprocessor firm in another era let's try it again they decide they give the task to a team of engineers on staff and they say okay we need something super high power that can essentially compete with this with Intel's 286 chip we need we need almost that good level of performance but it has to be super low cost because like we're making this ourselves you know we don't have the global resources of Intel behind us what can we do and so we have a lot of time and so this team led by Sophie Wilson who was and is an incredible computer scientist one of the most important you know contributions to all of computing as we see that she implements here she heard about a paper out of ironically back in the Bay Area in California out of UC Berkeley that just come out about detailing what a project would look like for a reduced instruction set computer now this is this is going to be a technical interlude but is super important to understanding you know again what becomes probably one of if not the most important underlying technology company for the whole industry right now so what are instruction sets and you want to talk about this I will and I first off want to take a step back here and make a disclaimer that we acknowledge that we are dramatically over simplifying technical details in this episode we do this with apologies to those who find this too basic but also conversely for those who find it to be so Tarek on the other side of the spectrum we are going to dust off the computer science degrees here and I would say in in true you know apple fashion here this show is and really the whole technology industry is the intersection of you know engineering and and the level of technology in the liberal arts and that's what this is here you're about to get a dose of technology may we be so bold so before we dive into what is a reduced instructions at architecture it's worth diving in what is the it's worth diving in what came before it the complex instruction set architecture and even before that like what the heck is an instruction set architecture like why are we what why okay so the instruction set architecture you can think about as sort of the language of a chip so a CPU has a variety of components on it places where you can store information places that temporarily hold information places that tick the clock and move all the information one step forward in the process and the way that it does all of this saying hey go store that over there in that register or hey advance the whole clock you know one step so that we can move this thing out of that register and push it off into memory or something like that all of this happens all what's happening inside the CPU in your computer whatever device you're using right now yeah and what at what speed I don't know like hundreds of thousands of times per second or millions of times per second I mean that this happens incredibly fast but requires a language it's sort of like a its own programming language and it's the the instructions or the instruction set that the chip itself speaks and so originally the way that this was done was with sisk and this was really the complex instruction set computer where instructions were well first of all there were a lot of them they were very very sort of malleable so they could do things like take multiple clock cycles to achieve a complex instruction it was this is like multiplying numbers dividing transforming numbers all sorts of stuff right right would sort of do as much as it possibly could using the hardware circuitry so it was really about hey this is going to be powerful hardware so we're going to write a language that leverages all the very unique and powerful components that are actually on this chip it could have without getting to complex on these things variable length instructions so you had to you couldn't rely on a set of assumptions about how long each instruction was going to take time wise or was going to take up space wise so while it provided the program with a lot of power it required a tremendous amount of sort of tight coupling with the hardware and complexity yeah recent and that translated to at the time everybody was thinking about number of transistors on the chip and associated memory that you needed to support the data that was going through all those transistors over time and much more importantly that would translate into power consumption the sisk c i c complex instructions that architecture computers that is what intel processors are so intel like the set of instructions that is sisk comes from intel and all intel x86 processors are sisk complex instructions that computers what acorn at this time and Sophie Wilson what they were picking up on out of academia was like maybe there's a different approach to how you could build these processors i've actually never seen this written about as low end disruption but this is almost like classic low end disruption where we say you know what if we punt on a lot of those things that everyone previously thought was important and solve a problem with a very different set of constraints where it's got to be cheaper it's going to be less sophisticated so there's less components on the chips there's going to be less instructions that are available for the programmer to use and really it's not the programmer it's actually the compiler that translates what the programmer writes into the the instructions set but it's really rethinking it from the ground up and saying what if every instruction could only take one clock cycle it could work on sort of a variety of different components but making this really hard core set of assumptions it was this software centric design instead of a hardware centric design so it was kind of portable it could use a very limited number of addresses and limited number of registers so in all aspects of it it's it's sort of worse it's you could sort of describe it as as worse in every way but I'll turn it back to you david for so how does that actually end up being disruptive and better what what are the team members original team members who worked with Sophie on designing this would write later you know you could think of it as it's the 80 20 rule right like these risk reduced instructions at architecture the machines processors that that a corn designed they were they only could do about 80% of the instructions that sisk could do but they did those instructions they executed them much, much faster like on one clock cycle instead of multiple clock cycles per instruction so when you needed to do those complex you know other instructions that were in the 20% the chips would slow down hugely but the thing was you just didn't do them that much so like the 80% that you were doing most of the time like they were really really good at you're spending a lot of money to build this sort of sophisticated components on to the chips so they can handle those things that you just weren't doing that often to put some numbers on this the 20 to 86 the famous Intel process Intel processor that started the x86 line the first one of those had about 130,000 134,000 transistors on the chip the 8 corn processor the risk processor when they finish it has only about 30,000 transistors on the chip and yet because of this 80 20 rule it actually has better performance than the 2286 so it's like way cheaper to make and it has actually better performance for most applications this is like huge this is a hugely forward in engineering and computer science so they do this so if you the team create this like in a very short period of time they decide that they're going to call this chip the 8 corn reduced instructions that computer machine a rm arm boom and the world changes but not just yet the groundwork was was laid for the world to change but it wasn't yet it's not like you know here we are in the 80s and Intel starts doing poorly you know these things take a long time this is really interesting so now let's bring we've just went deep technically on what's going on there's this huge innovation why didn't the first arm chip and the Archimedes that launched in 1987 with this chip why didn't it blow the IBM PC and the IBM PC clones out of the water well this is like a market forces thing so by the time it launched microsoft was on the scene right and and does was around and does ran on Intel x86 architecture and then eventually windows would run on top of does and started getting so much market share and all the applications that all these business and professional users needed they were all running on does does didn't run on Archimedes or the risk architecture computers so for a long time for the whole entire PC wave everybody in the industry knew that other types of architecture risk based architecture which are pioneered but you know the motor all the power PC like what apple was using at the time it was fundamentally better technology but because of the do do apple between the wind tell do apple between microsoft and and Intel it's almost like nobody really cared it's important to understand what role a compiler plays in all this so why is it that they couldn't just run the run windows run on you know these better chips until recently and there's been a lot of really great advancements and really commercializing the sort of crossover technology recently it was thought to be basically impossible to make your programming language which is you know written in C and using sort of the standard C compiler work well across different chipsets especially when you know you have so many layers of translation from the application to the operating system to the kernel you know eventually getting getting you know actually executed on a chip and there's a lot of sort of assumptions that are baked into the programming language to the compiler to the chip and sort of assumptions around those things being coupled together and so it's sort of much more difficult than you would think to rip the layers apart and say well we're just going to run this on a completely different architecture you know Sophie in team did this amazing thing of coming up with for you know for a different scenario a much better instruction set architecture however basically nothing would run on it and they needed to kind of think about the world in a whole different way and convince everyone else they should think about the world in a whole different way in order to leverage that innovation they created which wasn't going to happen during the PC wave because you know the network effect flywheel was like in full swing at this point you know you've got lotus you've got you know all these application providers writing for as we talked about writing for Microsoft which only worked on Intel so boom there you go to you know multi hundred billion dollar companies come out of that wave and a corn is left in the dust so as you think they're kind of in a bleak position here now they've put a ton of resources into this new Archimedes project that they think is going to be you know they're going to ride this next PC wave they're getting knocked off the wave you know this is probably the end of the company right and and actually it is a corn itself ends up getting acquired by an Italian computer company called alavetti around this time and they end up just exiting the PC business altogether but there was something also that we haven't talked about yet that was pretty interesting about these arm processors that they were building and this is another just like crazy thing of history that like nobody they didn't expect it so when they developed the arm processors when Sophie and the team developed it the goal was same level of performance ended up being slightly better for a lot less cost like put fewer transistors on the chip because that's going to cost less but what it turned out they would put these these processors into the PCs into the Archimedes prototypes it turned out they sometimes would function even without a power supply and the team of first they're like this is like crazy what is they like a ghost in this machine like how is this how is this how is this processor working without a power supply it was like what residual well it was it was without a dedicated power supply to the processor and this is like crazy because at the time like you know CPUs were the most power hungry components of the whole you know PC so like there was power running into the machine but just not a dedicated line into the CPU and it turned out that because there were so many fewer transistors on the chip it needed much less electricity and power to be able to run even at really high performance and so it was actually just sucking power from the other components in the circuit on the chip and it was still able to function and they were like whoa this is crazy so it turned out after a corn gets acquired by all of Eddie one of the two original co-founders this guy Herman Halzer who also was a Cambridge physics PhD he leaves and he's thinking which a couple people are thinking in technology at the time you know PC's are here but what's the next wave going to be this is like you know people thinking about VR right now or a couple years ago like we're in the middle of the mobile wave but like what's next and it's worth sort of like simplifying what we have right now we have a thing that uses a completely different architecture that's not really compatible with everything the rest of the world uses but is much cheaper to make high performance and requires less power and so Herman's like you know I think mobile computing like everybody's all about desktop PC computing right now but like think about everything you could do if you had a computer around in the world with you like not tether to a desktop he goes and he starts a company to try and pursue this vision of computing he calls it the active book company and he wants to focus on making pda's personal digital assistance which are mobile devices and what's super important for mobile devices battery life so and this is 1988 this is 1988 so battery life is very important right very important I think lithium ion batteries get like 15% better every year so compound that back 30 years like they were back yeah right like how long does your iPhone last today like not long enough you know imagine back then but they're just not that many people in the world that are thinking like 1988 shoot like I think I got my first computer at that point I was like four years old and it was a massive like you know a medal that sat on my desk and probably used you know half of the house's power supply like was an x86 what do you expect yeah right exactly so so Herman he's like he's focused on pda's and he's like you know what I think could make this happen is these processors we developed back at arm so he goes back to the chip team at arm into Sophie and he's like hey can you like rework this whole thing to really optimize for power consumption with while still maintaining this high performance so he's like yeah we can do that and they do and it works and they start producing these chips with their long time silicon partner VLSI because again they're not having the resources to be manufacturing their own semi conductors at this point so they used a fabricator VLSI to make their silicon well at the same time who else is thinking about pda's out there this is 1988 apple this is where the other Newton not Isaac comes into play so apple apples under Steve jobs is left at this point is getting kicked out of the company John Scully CEO and John Scully's you know great white whale is the same thing as Herman Halzer it's the personal digital assistant you know Scully gets like such a bad rap but like he actually had you know a vision that like very few people in computing you know did at the time not even Steve I'm Steve was off doing next right like he's trying to make a superpower work station come on what's the difference between being wrong and being too early nothing but good for the world that he was wrong and too early because Scully puts Larry Tesla at apple on this Newton project which is his his pet project and Larry is amazing so Larry came from Zyraks Park he was like an OG original computer guy he invented copy paste he's he's like leading the SWAT team within apple that's going to build this you know computing platform of the future he knows he needs a low power high performance chip he first goes to AT&T which was working on a on a you know low power chip called the habit which you can make this stuff up just like you would expect from a chip from AT&T called the in 1988 it sucked like it was terrible on every dimension and this is fun I think one of my car vows a few episodes ago was Jerry cappellans book start up and Jerry he was the founder of the go corporation here in Silicon Valley which was also trying to work on a pda at the time they had ended up getting acquired into AT&T and form the backbone of the habit anyway Larry gets introduced he's chatting with people in in the Silicon industry trying to find better chips he's chatting one day with someone a VLSI and they're like hey you know we've got this partner a corn over in the UK and like they're not doing too well you know they were trying to compete with you guys in the telephone directory but one of their founders is doing something kind of interesting right now also in mobile computing and they have this chip that's working pretty well you might want to check it out and Larry's like I need to have this right now so he goes over he meets with with Sophie in the engineering team over there and he's like this is great this is the chip we need here at Apple for the Newton but I can't license this tech from a corn and all of any like work competitors we need to we need to create a structure that can work here so they architect a deal with all of any and VLSI they spin off the chip division of a corn into a new separate company that they can then license this processor design from they do it super fast within like six weeks of when when they get together they've spun out the company into a new division new to a new totally separate company called arm this blew my freaking mind that arm was started it as a JV with Apple on the Newton it's crazy so Apple invests 1.5 million into the company so a corn and all of any are bringing the engineering group they assign 12 engineers to the new company VLSI is the silicon fabricator partner they get an equity stake Apple brings the money they get 43% of the company for one and a half million dollars again talk about a dilutive seed round to blow out the irony of this I'm going to jump forward just to foreshadow like all of the a series chips are arm processors like the thing that is so differentiating about the iPhone and there's a lot of things but one of the things that they're just years ahead on is being able to have some of the best processes in the world all based on the arm instruction set architecture we will get to have these companies have sort of parted ways over time but oh my God they were actually involved in the thing of it it is no overstatement at all to say that without the Newton projects within Apple arm as a company would not exist the phones you know whatever device you're listening to this on right now would look very different you might have it plugged into a wall with you almost assuredly don't it's crazy it's crazy so these 12 engineers they do the spin off they get the one and a half million from Apple these 12 engineers go down the street in Cambridge they said they set up shop in a converted barn and they bring in this guy Robin Saxby who had been an executive of Motorola to be the CEO of the new company and they get to work with Apple they're working super closely they're taking the core risk processor technology that they own but it needs to be super customized and fit into a chipset that's going to work within this small device the Newton so they're working hand in hand and at with Apple to create it and they make the processor it's the arm 610 and that goes into the Newton and every every Newton the Newton's that ships all had the arm 610 processor in them and then it would get upgraded over time but it would power every Newton now ironically remember Herman house or the original a corn co founder who had started active book and kind of set all these wheels in motion he ends up selling active to AT&T of all people in 1991 AT&T demands merges it in with the assets of go that it acquired which is now EO within AT&T only they could do something like this they force it to start using the Hobbit processor and of course I don't know I think I think these these PDAs did end up shipping but like they were so bad and it completely fails in the market David the rabbit holes that you went down for this episode I believe achieve new heights oh man this is so much fun speaking of failure though I mean AT&T was like obviously stupid with you know the Hobbit processor and and go read the book start up like it's so good about all the ridiculousness that went on around this the Newton also of course famously fails even though they have the arm processor and it's just too early like the world isn't ready for this so catch me up like I didn't research this part at all how does what happens to arm post Newton failure so when the Newton actually gets around to shipping in 1993 it's now been over two years that arms working exclusively with Apple the newtonships and like it's it's clear pretty early like there aren't going to be enough unit sales here that like the project like the home pod of PDAs yeah it's the home pod of PDAs so this is where Robin the CEO from Motorola who came in this is where he makes a couple really brilliant decisions and we talked about in previous episodes that like one of my tech themes has been recently that like when you can marry a huge technology wave with a key business model innovation like we talked about in the 10th and episode like that's one something magical happens and so what it Robin do he was like okay well we need to work with other partners here we can't be dependent on just Apple and just Newton to buy a lot of chips from us because they're not gonna they're not gonna pay us a lot in licensing fees here but he's also realized that like part of the magic of what made this process or really work wasn't just that like arm design this chip and like handed it over a whole cloth to Apple it was that they really embedded with the engineering teams on the Newton and made something like pretty customized that worked specifically for this device and so he's like you know I bet we could do this with lots of people and we give them this core processor this core risk processor technology we could embed within their teams and we can help them develop essentially custom silicon for their use cases and you know what is really interesting here like if we could create a little bit of this model that aligns with this what if we say like okay we're when we do this you pay us an upfront licensing fee for the rights to our core risk technology and you pay us for you know our engineering time for embedding with you and we'll make money on that but let's align get aligned on like actually shipping we want you to ship our units we want you to ship a bunch of units so how about we get a small royalty on every device you ship that has our technology in it and then the time like this is like okay somewhat interesting like how many devices could potentially ship that are like mobile computing devices. So arm gets gets paid three times like they get the license fee from hey you know you get to use the arm technology you know there are this instruction set architecture is one that you have the privilege of using on your chip and there's sort of two ways that that can work either they design the chip for that that manufacturer or they say here you feel like you're a good designer and this is sort of how apples relationship works today you use our instruction set and you do it so then they get paid the second time for actually embedding with them that's their sort of software and services line of business and then they get that third time which is every every unit sold you get a tiny little piece of the cost of each CPU that shipped out yeah well you know it turns out I mean this is one of the things that makes the technology industry magical a very very tiny piece of a pie that is literally almost a hundred times bigger than every person in the world combined which the number of devices in the world is at this point turns out to be a very very large slice of pie do you know how many arm chips have shipped to date I do but why don't you go for it 130 billion yeah that's billion with a B and that's a lot of pennies and think about that those are arm chips each of which is the core processor in a device so that is 130 billion devices not necessarily true lots of devices have well many devices have multiple chips within them yes but still like you know it's a okay reduce that by you know a factor of four or five or whatever like that's still like way more than there are people on earth yeah that was a thoughtful first contract to sign that they get some upside on you shipped yeah and what's also cool so again like I think this is such a cool example arm is of technology and business model playing together and and like making each other better so like obviously there's the financial aspect of this what's interesting on the technology side to because arm now like all the other chip companies take until for example they're like use our you know Adam seven whatever chip or core I blah blah blah I am going to give you this chip you are going to put it in your device because arm is like no no we're aligned with you we want you to make the best products and ship the best devices and we'll embed our technology and our teams with you we can collaborate on designing it however you want so this is what really it's arm and this model that starts to enable systems on a chip to be really take off so what is the system on a chip like back in the PC days when that we were talking about earlier you know a system PC you had a motherboard you had a processor you had a graphics card you had a sound card you had a blood I remember plugging all this stuff it and building my own PCs back in the day yeah man start on your PCI you saw it's exactly oh man incredible is that PCI express right yeah that was the other generation yeah that was like oh man crazy so people start to realize especially in a mobile environment like what if you could just put all of that just on one chip instead of having separate chips and buses and motherboards and whatnot arms like yeah cool like put our processor in one chip as part of it like we'll help you that and so apple now with the core you know the a a 57 you know bionic superman chip extra for all the Samsung chips Qualcomm chips TI chips like every you know chip your phones have multiple chips but like at the core most of the technology is being done on one actual piece of silicon this was the transition from the sort of the just discrete CPU to two system on a chip wishes you know where we are today yep and so actually that same year in 1993 and like again so much kudos to arm the company and to to robin the CEO for turning this around the same year that the newtonships and they realize this isn't going to work they sign a landmark deal with Texas instruments to provide the core of a processor that Nokia has contracted with TI to go into the Nokia 610 or 6110 we'll try and put a link to this in the show notes once you see this phone you were going to remember this phone this is like I think the first cell phone I had was like a variant on this yeah this is the candy bar phone this is the first major consumer gsm phone that is sold certainly in America and all over the world and this is what starts you know the king in the world of cell phone shipments that ends up you know with smartphones and where we are today David was talking earlier about why you know these these arm chips were you know even though they were better in a lot of ways they couldn't penetrate the do opally of of Microsoft and Intel and windows running there you can start to see now you know the software that ran on that Nokia phone that I'm sure when played snake on is nothing like the software that ran on max or on windows snake was on the phone or at because because farm processors were literally like before the the Nokia 610 the processors in cell phones weren't good enough to even run snake but now you have this low power hyperformance processor that can run games right and you can like draw direct line from there to you know farm build to clash you know clash of everything right the bridge that hasn't gotten crossed yet is how we went from that which really I mean that phone felt more like an embedded device than really like phones as we know today and phones today are are effectively PCs and if you think about the work that was done to create the first version of iOS it was really to strip down macOS and people always harp a lot on this now in macOS to create iOS and it still uses the name Darwin kernel and all that stuff but the other crazy piece of work that had to be done to bring a computer operating system to to these mobile phones was adapting it for the arm chipset like to bring PC operating systems to something that would operate on the these chips that like weren't getting a lot of power and had you completely different instruction set the fact that iOS and Android works the way it does today on this chip that was nothing like what they were originally architected for is mind blowing you know it's interesting I didn't I'm put to into the together till right now but I I strongly suspect you know if you think about like why did Microsoft miss mobile there lots of reasons right like cultural you know what have you technology you know but actually like this specific technology reason I think could be could be one of the major points that you know Microsoft had windows mobile right and Microsoft had windows C and embedded windows and whatnot right but like those were completely different code base completely different that wasn't Microsoft windows because Microsoft windows and us only ran on complex instructions set architectures right they're not going to re architect that whole thing to run on risk architecture you know I mean they do they do now they do now but last couple years at the you know as smartphones were to you know why could apple do this apple had always been much more open about their you know about their architectures that macOS ran on that OS 10 ran on right and like oh did they already do the transition from the Motorola processors the Motorola power PCs to well they had the memory yeah they had to pour into the x86 Intel with with OS 10 right so they were much less wedded to you know and open to porting their macOS macOS and OS 10 into different architectures and indeed they had this newton DNA as well for folks who don't know specifically we're talking about so the iPhone came out in 2007 which holy god they put macOS on an arm chip two years before that the thing that we're referencing here is in a very jobs in keynote that continues to go down in history as just an amazing piece of showmanship Steve jobs came out and said so we're changing the chips that are in all the new max away from the power PC that we've been using to using Intel which of course was so dramatized and Paul drotterly walked out on stage and oh my god out you know apple is using Intel in the you look at all the old others still the ground is burning from all the carnage and wreckage of those old wars and here's what's happening now and Steve of course says and the crazy thing is that you guys don't even realize it's been that way for a year and all the operating systems dating back you know a year or two years ago it was multiple years yeah have been capable of doing this and you guys just didn't know it so go by yourself a new computer and all your old on it David you're right I think that that did give them sort of the confidence to say like wow you know I guess I guess we could start re-architecting our operating system to work on yet another chipset one of course at that point in time the iPhone project was well underway but you probably getting close to shipping because I think it was 2006 right when that had I wonder how similar those efforts were yeah interesting well anyway to rewind back to arm so this is happening they do this T ideal the Nokia 61 10 launches things are all basically up into the rate indefinitely from then for arm so at the end of 1997 arm is doing over 25 million pounds in revenue and they're profitable they do a dual IPO both on the London Stock Exchange and the NASDAQ is member they have British shareholders Italian shareholders and Apple American shareholders on April 17 1998 they price the IPO at five pounds and seventy five pence per share which translates to a market cap of 264 million pounds now the exchange rate was stronger back then but still my god I wish I could have invested at the IPO it grows hugely throughout the tech bubble especially and this is this is so also I can't believe this is going to be like a footnote in this episode but like I want to highlight here this saves Apple the R my PO had it not happened very likely Apple would have gone bankrupt because this is 1998 Steve jobs had just come back into Apple scully was asked to the companies bleeding cash like they are like seriously facing bankruptcy and what it's a decade later but they still own that share of arm no no no they still know they start liquidating the arm shares and thankfully they don't liquidate all at the IPO they start selling slowly over a couple years as the arm stock price is going crazy Apple remember they invested one and a half million they make seven hundred and ninety two million dollars in profit from selling their arm stock over the next couple years and literally that is what saves the company like they would have gone bankrupt without that imagine being an analyst like now there's an army of Apple analysts but like then you know imagine being an Apple analyst and you're like okay yet another quarter where all of their it wouldn't even be operating income but all of their profit is coming from liquidating this thing that's going to run out I mean that was literally what kept the company afloat kind of amazing while while Steve was you know preparing what would become the iMac and consolidating the product lines and ironically killing the Newton so when the tech bubble burst and the internet bubble burst and the telecom bubble burst in 2001 arm of course you know takes a blip and shipments basically like plateau for you know a year maybe not even but again like this is such a huge wave like by 2002 they pick back up to the point where in 2010 arm is now arm partners are now shipping over five billion devices every year again so almost as many people as they are on the planet arms partners are shipping devices so like you know these are these are aren't just of course cell phones these are you know microwaves these are refrigerators these are cars like cars have a lot of arm chips in them these are sensors and devices anything that needs a low power high performance embedded processor so typically this would be where we would you know wrap up our history in fact companies just growing this however I PO you know yeah you know we'd we'd great the IPO we'd say like man you know I've only Apple it hold on to their shares and didn't need the liquidity it's kind of crazy I'm not sure we would be doing this episode if soft bank hadn't bought them because it is sort of like if you've bared with us this long in this you probably agree it's this sort of obscure technology company that has an absolutely enane business model before moving forward David it is is worth putting a fine point on the business model where they don't manufacture chips about half of their business are a little bit less I think comes from designing the chips and then licensing those out and then you know they have this this large component of their business that is just licensing the instructions at architecture like they have now managed through the value they've they've created through the intellectual property but also the lock and they've created by building an ecosystem around their instruction set they just licensed their instruction set and it means they get a cut of all chips that are manufactured using their IP and that that sort of continues to blow my mind that somebody doesn't say like sorry that's not your lunch like and and this isn't like a trivial amount of money I think it's something like if you look at the iPhone I think they make like 35 cents per unit it's something like 1 to 2% of the chip selling price depending on which of their business models it was a manufactured under but like 35 cents of every you know a series chip why is it that they've managed to hold on and actually get a cut of every single chip manufactured I think it's probably two things one they continue to have truly excellent processor and chip engineering and design talent right so they truly are one of the world class you know best processor design companies in the world at a time where advances in both performance and power consumption for processors are more important than ever but I think also it's it's the same reason why the windtell do apple existed right like even though apple is more flexible about moving architectures than you know where Microsoft was back in the day Android and and iOS run on risk architecture chipsets are they really going to re architect them for something else there even is there is no other thing to re architect to yeah that's true they would you would have to come up with your own instruction set build your own set of compilers to enable operating systems does a lot of this anyway like apples one of the companies that actually could probably uniquely do it because they could write their own instruction set I mean this is like way bleeding into tech themes and random future forecasting but like they could write a new compiler build it into X code make it so that every app that's that's compiled just works on their new chipset that's not arm base that they launch just like they did with intel back in 2006 right and it wouldn't surprise me because they've they've taken over not only their own I mean they don't manufacture their chips but they designed their own ships they of course license the ISA from from arm but like it does just seem like it would be one more expanding of their vertical integration to say actually it's going to be based on our own architecture now to so color me in for that prediction in the next three years interesting and and also apples uniquely position to be the only company to do it because Google is not going to do it with Android because Android is a diverse ecosystem you need arm to be the architecture to be the standard across the chipmint you TI Qualcomm whoever brought come all the partners you need plus Google plus you know whatever what have you Google with Android is kind of the micrace soft it's actually a little bit worse of a position the Microsoft because you can't guarantee that it's an intel chip it's probably a qualship com chip but it could be a bunch of things well all right so to pull back from tech the back to our story the actual acquisition because that's the name of the podcast this is like such a such as schizophrenic episode because until now I keep pulling us into the future this is so important this company in this technology and I hope we've done a good enough job communicating that but this is like a hardcore technology episode but now we're going to shift the wheel and shift back to like crazy you know James Bond style soft bank and masa okay so this brings us to 2016 all is well in the world arm is winning you know based in Cambridge doing great engineering working with partners got their great business model did about 1.6 billion in revenue the previous year yep this stock price is is having a huge run because the financial community is starting to wake up to this fact that like oh hey if I want to ride the mobile wave and I want exposure to this arm is like a really good way to do it yep we shipped 15 billion units in 2015 like it's a things are happening yep so thanks to fast company and Katrina broker and friend of the show David Lidsky and their great piece on masa and soft bank that just came out we know what happens here so at summer of 2016 and masa is hosting a dinner for tech industry luminaries at his amazing nine acre estate in Woodside California which is like a super Tony community you know right outside Palo Alto right right over 280 this is where Steve Jobs mansion was that he never built out this is where Larry Ellison's whole compound is and masa has like an equally amazing compound there he's hosting a dinner one of the attendees at the dinner is Simon Seigars who had joined arm back in 1991 right after the spin out he was an engineer and he was the 16th employee at this point he's risen through the ranks over the years he's become the CEO and he's kind of like you know his job is like steward of this ecosystem and like obviously everyone uses arm but like soft bank is an important partner because they're one of the world's biggest telecom operators and so like he wants soft bank to you know make sure that they understand how important arm is in the chipset of the phones that they're selling like okay great I'll go to this dinner I'll you know hang out with masa so they're sitting there at dinner and and masa starts like focusing on on Simon and he starts asking him a bunch of questions about you know what arm does what the business model is you know all the various devices that arm chips end up being used in so masa's like so what what exactly do you guys power and he's like well we power everything you know we're not just in phones like we're in cars we're in coffee makers we're in refrigerators wearables we're starting to get into servers like actually because of this power consumption issue like super computers like power is a limiting factor on performance they're starting to use us and masa's like hmm interesting so then masa asked him what you know now has famously become the the question that he asked every vision fund investment which is what would you do if money were no constraint and Simon's just sit there at dinner and he's like well I guess we'd probably keep doing everything but but faster and masa's like hmm okay so Simon goes back to Cambridge back to the UK to arm very different from the environment he was just in he's sitting there a couple days later back in Cambridge and he gets a call from masa in Tokyo and in typical masa fashion he's like I need to see you right away and not just you but I also need to see arm chairman Stewart Chambers chairman of the board and this this is the best part of David's David's reporting here this is great well it's we alluded to this in the car about on the last show so there's one problem which is that Stewart is on vacation and he's on a yacht in the Turkish Mediterranean but like masa doesn't like yachts in the Turkish mid like that's that's his ballgame like that doesn't face him he's like okay well you know hang on I'm gonna call him he calls him and he's like I need you to dock your boat in Marme Turkey which is like a resort town on the Mediterranean coast in Turkey masa then sends a private jet to Cambridge picks up Simon he jumps on his own jet they all converge in Marme I don't know if it's Marme French pronunciation or Marme's in Turkey masa buys out an entire restaurant with like a view overlooking the Marina so there's nobody else in there they all converge the three of them in the restaurant and they sit down and masa's like I want to buy you guys and I'm going to offer you $32 billion which was a almost a 50% premium to where they were trading at that moment in time and I want to do it now you know like when there's a public to public acquisition at sometimes is like 20 25% we've seen up to 30% and you know more typical situations but like I think it's a 43% premium yep typically with you know public to public acquisitions to there's a lot of back and forth and there's investment bankers involved in like you know it's very rare that you get an Instagram style like done in those didn't two weeks yep they closed into they announced they got board approval and they announced within two weeks arm to remain an independent division within soft bank soft banks going to pay $32 billion to buy the whole thing the market loves it it gets share hold or approval and it's done this as we alluded to at the top of the show it was this model I'm sure masa was already starting to think about the vision fund but this deal and this vision of computing everywhere and what it all enable becomes really the prototype for what soft bank is now doing with the vision fund so much so that the next year in 2017 when they actually get the fund set up soft bank corporate sells a 25% stake in arm at cost to the vision fund so the vision fund takes eight billion dollars right off the bat and buys 25% of arm from soft bank corporate so what do you think went on with that why well I think masa was always thinking about this as an investment it was just that before the vision fund the only way you had to invest was balance you soft bank balance you yeah I mean now there's a ticking time clock because the vision fund has a 12 year fund lifetime so it's not like he can hold it indefinitely now like the at some point they have to either sell that back to soft bank which I'm sure masa doesn't want to do as someone who controls both entities probably wants to in the next you know five to seven years get a nice return on arm and sell it to someone else so even seen the last this well I think most likely and this is what people started talking about after the the transfer the 25 transfer yep into the vision fund is re IPO it I think that's the most likely outcome but what's interesting and this also speaks to the vision fund strategy so in 2016 when soft bank acquired the company there were only about 4,000 people working at the company which on the one hand is a lot of people on the other hand like that's a lot less than Uber that's a lot less than you know I think less than Airbnb at this point like for a company that old and that was like literally the foundation of you know all technology at that point I mean I think they have a 96% market share of all smartphone and embedded devices embedded devices that's not a lot of people in the you know two plus two and a half years since then arm has hired over 2,000 people so they've grown by more than 50% headcount since they couldn't have done that if they were a public company because they're now losing money they're now net income negative but masa again like you know it's his question what would you do if money were no object are they net income negative so here's what I was looking at at that they their operating margin was 52% they're operating margin at the time of acquisition their operating margin now is 24% even though they've grown from 1.6 billion in revenue to 1.8 billion in revenue their EBITDA dropped 40% despite the revenue increase so I'm not sure if they're losing money but they it's interesting they're selling a lot more devices they're only make a little bit more money and their profits significantly dropped. Interesting. At the margin dropped I just pulled it up again I said there's an article that they posted a loss of 200 million in I believe 2018 which could be for lots of reasons and obviously that's not operating margin that's net income. The drum that they're beating and telling investors right now is hold on guys we are way investing in growth and it will pay off and then we're going to do something about it when it does. And what's interesting you know they still do quarterly presentations on company results. What they're talking about now is how they're investing heavily into the next computing waves. So ARM has started now making designs and devices chips that are dedicated for AI use cases but also for like autonomous vehicle use cases so you think about you know Intel bought mobile I for I think $17 billion and mobile I makes chipsets for cars in particular for computer vision for driver assistance and eventually auto fully autonomous use cases ARM is getting heavily into that market as well as well as all sorts of you know embedded computing. Yeah it's interesting because the stated reason at the time of purchase and at some point here we'll we'll breeze through the other sections of the show but at the time of purchase the drum they were beating was its IOT that the Internet of Things is blowing up and because you know there's going to be an armed device and much more than your phone it's going to be in all these other things that are communicating with the Internet around you that's why we believe that the growth is it's like the most I believe that there was some growth that was not priced in that he believed was going to expand the market for IOT devices was going to expand even greater than the the public market investors who owned ARM believed or at least that there would be some reason to believe that it would be generating more more future cash flows and it was IOT IOT IOT and it's interesting to see you know tears later now on some of their investor relations stuff so that it really is more about the connected car and AI chips so certainly their their devices shipped has has continued to be a really great story they went from I think 2015 they were in they were 15 billion and now in and they think at the end of 20 when was this 2017 they did over 21 billion yeah that's what I'm looking at to their exponential growth continues to be really excellent but it is interesting it's like on on what thesis do you have to believe in a specific thesis about where there will be more CPUs specifically low power ARM CPUs or do you just say look I don't have to believe anything in particular I'm just pretty sure that these things are going to continue to be more and more everywhere yeah it's funny I'm in the latter camp but should we jump to acquisition category yeah so you know we were setting this up all along for an IPO narrative but boom acquisition because we've done so many recently I know business line for sure not even no no no yeah I don't think soft bank does anything else quite like ARM so business line and it's fully independent okay what would have another business line like you know this is an interesting one feel like this is the first interesting one in a while I have two interesting points to make on this one so do you know how mosa got the cash to buy ARM oh interesting I did not so it was interesting the time when he bought it was actually at a currency fluctuation due to Brexit where the pound was not doing well so he got a lot of blowback that you know you're taking advantage of a distressed asset here and he's saying no I'm not taking advantage of a distressed asset I really believe in this and I was just waiting for the cash to come in where the cash came in from was they sold 10 billion dollars of Alibaba shares and seven billion dollars of super sell shares plus they took a nine billion dollar loan and soft bank does this pretty often I think they they they take out these big big credit lines to do do deals like this which makes a lot of sense why you would switch to you know having a freaking huge fund if you're used to these multi billion dollar loans to finance acquisitions it's like wait a minute you pay me for using your money instead of me paying you I like that it's like the spn deal yeah it is business model innovation all over the place here required yeah so the my sort of theme of this section is interesting to look at the conditions upon which the deal got done so that's condition one which is interesting to look at the second condition is they were a nice deep pocketed Switzerland that this company could actually sell to you that could finance aggressive future growth and if you think about other people they could have sold to it it would have been value destructive because if you sold apple then you know qualcoms freaking out that they're not going to have access to their core technology anymore and same thing in in you know the other direction and so the number of possible purchasers who have 30 billion dollars or who can raise 30 billion dollars that are willing to plow a bunch of future investment into your business that aren't strategically or I guess structurally sort of corruptive to where you want to operate in the market and in a value destructive way pretty limited I would say it's it's fortunate and and value creating for the world that it landed where it did well yeah I mean think about like we referenced at the top of the show that in many ways this became the model for the vision fund and you know like say what you will about the vision fund and there are certainly you know like anything there's a balance sheet right of like it's their positives and negatives to the ecosystem of it you know this is a major positive right like arm as a public company right it had been a profitably operating public company for at that point close to 20 years it was the most arguably the most important foundational computing company out there but like if they were to say to Wall Street hey you know we're going to massively investing growth right now we're going to turn net income negative you should expect losses for the next few years while we lay the groundwork for the next waves of computing what would happen right like their stock would crash like they were like going to be prevented from doing that and I think this is the core of you know in some ways it's like hilariously funny and mosses question of like what would you do if you know money were no object but this is like this is what he means right like and I think in a lot of ways like soft bank is a great home for this company for the time being David and I have gotten a lot of feedback on and listeners we appreciate all this feedback that we do a lot of talking about the value that accrues to the acquirer but we do very little talking about the value created in the world by a transaction happening this I think is value creating to the world if you believe that those 4,000 you know really brilliant physicists and PhDs and chip designers and computer scientists and technologists if you believe that funding them they'll continue to produce IP that will enable us to have continued innovation and do things that we previously didn't think possible because it would produce too much heat or you know the consume too much energy or anything like that then yeah I think this is incredibly value creative both for the arm ecosystem and for sort of anybody who uses any of their products which is all of us it's a very much you get the investors you ask for there's a very reasonable chance that the public market was not a good place to you know to go stand on that hill and say we're going to be we're going to be bad for a while but it'll be great eventually it's like you need someone else to sign up for that right right it's very hard to ask you know once you have a certain set of investors it's very hard to ask them something different from what you have been asking them without a change of control like this yep should we move into tech themes officially yeah let's do it finally I've got to which I know I've been beating this drum for a while one is just like this alignment that I talked about earlier of like technology model and business model like if you can really innovate on both of those then like that is when really really really powerful things happen you know maybe in the game of this episode and Apple and its involvement here you know it is the the marriage of technology and the liberal arts when you can do that so that's one the other one that I feel like I've been talking about more on the LP show I can't remember how much I've talked about this on the on the main show that I think this really illustrates very well is when it comes to startups and investing it's so easy people make the money of focusing on what your tam is today versus the much more important question of what your tam is tomorrow and this is such a great case study because like when arm the spin-off was getting started and they were developing the risk processor you could have looked at it and been like this is so stupid like the tam you know the market today is for IBM PCs and it's the Microsoft you know Intel do Apple is getting started like this company's dead in the water like this is so stupid right but it was the tam tomorrow of the coming mobile wave that that was the opportunity and that was what mattered now of course that means that getting the timing right is super important but if you can time correctly when the tam tomorrow is going to start to realize and you can get out in front of that and be building the technology you know a couple years in advance so that it's ready like that's that's magical I am looking at a graph here with about 10 years where it looks like there's no growth in the right now yeah timing timing timing but it wasn't that long until from the time of the spin-out they got that TI contract for the Nokia 61 10 within three years of the spin-out so like the devices weren't shipping yet but they were they knew it was coming yeah it's a great point I have no tech themes I have said all love it love it love it for grading what do you think about we've talked about for grading more recent events and I think this still qualifies as a recent event the soft bank acquisition what's let's paint the the A plus scenario and the the C or C minus scenario over the next five years all right so I'll start with the A plus if you believe in the thesis that David and I chatted about on the L P show that that ambient computing is the next computing wave so to sort of review the there was PC and that Ecosystem of value created then there was the Internet and then mobile and sort of what is that next thing and what is that next wave of computing upon which it platforms will be built that you know that enable entirely new use cases new companies and you know a new way that people interact with technology and ambient computing is that thing they're probably all going to have arm chips in them be it the air pods the air both wearing now or the watches that I think we're both wearing now or as our friends on the the team that work there say the lady in the tube that will respond to my voice when I get home all the way down to sort of the litany of things that used to you know just be dumb and vetted devices like the little oven timer or the little oven clock there's a very reasonable chance that we have hundreds of of arm chips that were interacting with over the course of the day that makes it look like a pretty smart buy assuming that that was not already priced in so when we just like let's let's review that real quick the 32 billion was bought for 18 X earnings and 29 X EBITDA so already a you know fairly expensive stock but yeah still still feels like a good buy if you believe that we're going to transition from sort of somewhere between one and a dozen that we regularly interact with to hundreds of the day and it's funny I'm just pulling up here because of course arm still reports their results it's awesome that they do that I know it's so awesome that they do that okay so totally agree that's the a a plus case the C C minus case I think I fall in the a camp but just to paint the bear picture here so currently for the most current results we have total revenue for arm over the last four quarters so the trailing year of revenue was 1.8 billion so they bought the company for soft bank bought the company for 32 billion two and a half years ago for a company that is still doing less than two billion in revenue that's a pretty big gap to fill right like if you're anticipating like you know significant returns on on your acquisition from you know already two and a half years in the past you need some of these new markets to start hitting and start hitting big real soon from from an IR perspective and you know the royalty portion of the company's revenue which is the alignment with partners so that's that's the one that's dependent on number of units and that's really what you know I think the investment thesis is about that like number of units of shift is going to grow exponentially like it is the largest revenue stream in the company but it's actually not growing that fast in terms of how much revenue they're getting and I think that must be because they're just getting such a small amount of revenue from every device shipped and as the devices proliferally and cheaper and more basic devices you know like sensors and the like become the vast majority of number of units I bet they're getting fewer actual dollars from those. Yeah it's interesting and this is an area one other bear case is something that I'm not technical enough to evaluate but what arm was to mobile and Intel was to the desktop and something else to the proliferation of devices and make arms sort of look like the the old grandpa technology like as there's some significantly lower power thing that you know literally just needs the vibrations of the EM spectrum in the air to power it or something really crazy now that's why I think like this is in that full length of time like I don't see anything else on the horizon that can actually really replace arm and the and the risk architecture but again if you look at their financial results like the fastest growing portion is software and services right this sounds like the Apple narrative right of like you know all as well even though our you know core business is is flat to declining like we're making it up in services like that's not as defensible so you know I think that's this this this bear case is the company while a great company and a foundational technology company actually can't command that much of the value creation going forward from computing and doesn't end up being as good an investment as they expect it to be from the academic side of things it depends how much arm is the point of integration if they're just a component that ships in phones and the real value is created and the phone is the point of integration of hardware software services and components and most of that value accrues to the phone manufacturer which is why Apple's worth or half of trillion dollars but to the extent that arm actually has ecosystem lock in and commands a lot of value for doing that and in some way they're the point of integration bringing you know the software developers who are able to write software that gets compiled to run on arm processors with the actual device manufacturers which they aren't that that explains why they you know command so much less of the value there you have it we shall see we shall see and this is a fun one thank you listeners for for bearing with us I hope we did justice and communicated you know a little bit about the technology a little bit about the business model hopefully a lot about the story but also you know why this is no matter what corner of the technology ecosystem you live in this is an important one to understand yeah and I don't think I really got that until digging in I mean it was always kind of mysterious to me of like I just didn't understand why it got bought for so much when they don't make anything they weren't making the chips yeah and it's you know it's been nice to have an hour and a half to understand that a little bit better well folks if you aren't subscribed and you want to hear more you can subscribe from your favorite podcast client if you like what we're talking about about kind of the future of computing and ambient computing you should consider becoming a limited partner so Kimberly light dot fm slash acquired or click the link in the show notes and we'll have some pretty fun guest guests coming up on the LP show pretty soon that we're excited about so we will see you all indeed see you next time