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5 January, 2016 - 08:44 By Tony Quested

From the back of a barn to the top of the world

courtesy ARM

From the back of a barn to the top of the world; from 12 digital disciples to an international team of thousands. From a near-death experience to global glory.

That’s the journey made by ARM – the mighty technology oak that grew out of Acorn 25 years ago.

Exclusive interviews with former CEO Sir Robin Saxby and co-founder and former president Tudor Brown in recent times highlight that ARM is a business that has fought tooth and nail for its success. There has been no silver spoon.

Robin Saxby, who worked for major corporations around the world, was headhunted; all he was told was that someone was needed to head up a new business about to be launched as a joint venture by Apple, Acorn and VLSI.
Robin told me: “When it came to discussing the business plan, we didn’t have very much money to fund the venture. Apple put up £1.1 million, VLSI £250k and Acorn supplied the technology and 12 founding engineers. We had no patents, not a lot of money and no industrial customers but we did have a barn, some energy, some belief and some relevant experience.”

In the early years of ARM, Robin was VP of pretty much everything from the finance to the business building roles. Fast forward to 2015: Some 3.6 billion ARM chips were shipped in the third quarter – 20 per cent up year-on-year. The company’s market cap is more than $23.1 billion and at the time of writing its share price in the UK is 1080p.

Rewind 13 years, courtesy Tudor Brown. It was the crash of 2002. ARM’s share price nosedived from £1 to 38p; 12 per cent of the workforce were laid off. Brown told me: “Everyone thought it was going under.”
Within nine years there were more ARM chips populating the planet than there were people and ARM had not only given US giant Intel a bloody nose but a black eye, a fat lip and a few cracked ribs into the bargain.
By 2020 there could be 150 billion ARM chips in devices around the world. New markets are opening up all the time.

Capturing the mood of pessimism in the darkest days of 2002, Brown recalls: “With the stock at 38p, buying shares at that stage would have been the smartest thing we had ever done. But nobody did. Everyone thought it was going under.”

Brown said fear of failure was never far from the surface as ARM’s founders escaped the clutches of what he called “a totally incompetent Acorn management” and set up on their own in a Cambridgeshire barn in November 1990 – 12 engineers with a united desire for success but no great expectation of achieving it. That fear of failure stayed with them until the global mobile phone industry boom hit the sweet spot and purged their collective paranoia. 

He said: “ARM was an unusual startup as it spun out of Acorn. Three things spring to mind. 1 – The technology was relatively mature; we had a product that worked. 2 – The team had worked together for a long time within Acorn; for example, Mike Muller and I had worked together for seven years. 3 – We had – I won’t say a vision because it was nothing so grand – but a need and a desire to get out and free ourselves from what we saw as a totally incompetent company. The driving force was not to make a lot of money.

“Acorn made a whole lot of mistakes but people need to make mistakes; we all accept that. Cashflow was Acorn’s major problem; they had great technology but no market, even though we were all engineers and the technology was excellent. That’s a mistake a lot of startups make, that because they have a good product, that will see them to success commercially.

“I’ve seen so many failures of IP companies who thought technology alone was enough; it isn’t sufficient at all. In many ways Acorn was a great company; witness some excellent spinouts and the wonderful legacy it left the world of technology. But it kept running out of money – and kept screwing up; it went bankrupt twice. It would get halfway through a project and abandon it.

“When I joined I was employee number 468 – and there were 400 R & D projects on the go. They were sponsoring Formula 3 racing, throwing parties all the time – flushed with their own perceived success. They had a disastrous entry into the US with the Micro.

“We learned from all of that. The team that formed ARM was the most senior group from within Acorn, supplemented by Robin Saxby’s arrival. Robin engendered a very open culture which remains today.

“But the Acorn team had all been used to abortive attempts to succeed with one technology or another so we all expected ARM to fail. Our deal with Apple to build a chip for the Newton was a catalyst for potential success; it brought a little bit of cash and kudos, but the Newton nosedived.

“Other products using ARM flopped. It seemed to us that all early ARM-driven products were failures.”

Fledgling ARM turned that negativity into a huge positive in the shape of a business model that has stood the test of time. It budgeted only for licensing fees, not for royalties. 

Brown would love to put this down to amazing foresight but acknowledges that “it was because none of our products were around long enough for us to earn any royalties! We built the business on the assumption it would fail and were prepared to eke out a living on licensing fees. Again, a lot of IPs have screwed up by betting on earning royalties.”

The dynamic began to change when Nokia produced the first GSM phone using ARM chips in 1997 and the mobile phones industry began to gain major traction. But even then Brown reckons it might have been another 10 years before ARM really believed they had crossed the Rubicon.

“When we started out we had a mission but it was a long time later before ARM would become the business it is today. You have to put it in context – lots of false dawns had beset our careers and there was a fear of failure. Every time a new customer came in we’d think, ‘here we go again.’

“The Nokia phone stood the test of time. When it came out in 1997 it was confirmation of the industry’s worst kept secret. We’d been engaged for three years from the ‘here’s hoping’ stage to the product shipping. Even then, mobile phones were not predicted to become the massive market it is now.

“We then went public in 1998 and there was lots of optimism. But in 2002 came the share price crash and we had to lay off a lot of people we had grown accustomed to working with; friends in many cases. It was a terrible day.

“I won’t say we got lucky because we knew what we were doing but timing is important in securing business success. We got sucked up into the growth of mobile phones. We helped create that demand and helped drive it. Without ARM’s technology and business model, mobiles would have been far more expensive and therefore shipped in far lower volumes.”

Brown also believes it’s fortunate that ARM never needed to raise money after the initial fundraising on IPO. “We were lean and mean in the way we ran the business from the very start. I remember going into Robert Sayle and buying the cheapest phones I could get that were fit for purpose.

“We wired the telephone system in the barn ourselves to save money. It’s all about treating the company’s money like your own when you come to spending a single penny. With ARM came freedom. Not having to go back to the market for cash we knew that we would never get diluted.

“By budgeting purely on licensing income and not royalties we knew we could still survive. Most IP startups forget the time to money – the time from licensing to royalties is at least five years and that’s a long time to be funding someone else’s product cycle. Most companies who made that mistake have gone bust.”

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