Arm’s biggest customers are also backing a rival chip design — here’s what you need to know
Dado Ruvic | Reuters
With Arm slated to start trading on the Nasdaq on Thursday, investors are considering the potential upsides — and downsides — of investing in the company.
The British chip designer itself flagged several risks in its IPO prospectus, ranging from its China business to geopolitics, but one potential threat has gained traction as its listing nears.
It’s called RISC-V, pronounced “risk five” — a rival chip design that is backed by some of Arm’s own customers.
While analysts told CNBC it’s not an immediate threat, Arm itself warned that if it gains traction, it could pose a competitive risk.
What is RISC-V?
To understand RISC-V, let’s consider what Arm actually does. Arm designs what’s known as an instruction set architecture (ISA) for chips known as processors or central processing units (CPUs). These chips can be thought of as the brain of an electronic device.
Arm’s ISA is effectively the blueprint for processors that other companies, from Apple to Qualcomm, base their chips on.
Arm charges these companies licensing fees to use its technology to build their own chips. It also gets royalties when these chips are produced and go into end devices. Arm’s designs underpin processors in 99% of the world’s smartphones.
RISC-V, meanwhile, 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.
“If RISC-V-related technology continues to be developed and market support for RISC-V increases, our customers may choose to utilize this free, open-source architecture instead of our products,” Arm said in its IPO prospectus.
Is RISC-V gaining traction?
RISC-V in recent years has gained support from some of the world’s biggest technology companies, many of which are also Arm customers.
Google, Samsung, Qualcomm and Nvidia, for instance, are part of a consortium formed in 2020 to develop RISC-V-based technologies.
Arm warned that if this development is successful, there could be a viable alternative to its architecture.
“Although the development of alternative architectures and technology is a time-intensive process, if our competitors establish cooperative relationships or consolidate with each other or third parties, such as the recently announced joint venture focused on RISC-V, they may have additional resources that would allow them to more quickly develop architectures and other technology that directly compete with our products,” Arm said in its IPO prospectus.
Support for RISC-V was “galvanized” after Nvidia proposed to buy Arm for $40 billion in 2020, according to technology researcher Richard Windsor, founder of Radio Free Mobile.
He suggested that other players were worried that if a major customer like Nvidia controlled Arm, it could be a disadvantage to some of Nvidia’s rivals.
The proposed takeover “raised a lot of hackles in the industry” and some Arm customers are “starting to think twice” about their dependency on the company, Windsor told CNBC this week.
“Maybe we should have a second source just in case things start not going in our direction, or we have problems with Arm,” he added, in reference to the thinking among some Arm customers.
Is RISC-V a threat to Arm?
The general consensus is that, right now, RISC-V doesn’t pose a major threat to Arm. That’s because the technology is currently far inferior to Arm’s offering.
“The issue with RISC-V is it’s much more immature. It doesn’t have the same level of support for more advanced designs,” Peter Richardson, research director at Counterpoint Research, told CNBC.
“RISC-V is quite far away from being at that leading edge, but for some workloads not at the cutting edge, then RISC-V can work quite well.”
One of Arm’s big successes is its huge customer base of major tech players. This has allowed Cambridge, England-based company to build an “ecosystem” of companies that rely on its technology — an advantage that RISC-V doesn’t have.
“Whenever you devise software that runs on one Arm, it will run on all the others as well,” Herman Hauser, founder of Acorn Computers, the company behind the first Arm chip, told CNBC’s “Squawk Box Europe” on Thursday. “So I think Arm will continue to retain its dominant position.”
However, there are fears that Chinese companies in particular could view RISC-V as a cheaper — and more appealing — alternative, particularly if Arm increases its prices.
“If Arm raises its prices, what are chip designers in China going to do? They’re probably going to go for the free version. I wouldn’t be surprised if China really scales up on RISC-V,” Cyrus Mewawalla, head of thematic intelligence at Global Data, told CNBC this week.
Technology
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Chinese bargain retailer Temu changed its business model in the U.S. as the Trump administration’s new rules on low-value shipments took effect Friday.
In recent days, Temu has abruptly shifted its website and app to only display listings for products shipped from U.S.-based warehouses. Items shipped directly from China, which previously blanketed the site, are now labeled as out of stock.
Temu made a name for itself in the U.S. as a destination for ultra-discounted items shipped direct from China, such as $5 sneakers and $1.50 garlic presses. It’s been able to keep prices low because of the so-called de minimis rule, which has allowed items worth $800 or less to enter the country duty-free since 2016.
The loophole expired Friday at 12:01 a.m. EDT as a result of an executive order signed by President Donald Trump in April. Trump briefly suspended the de minimis rule in February before reinstating the provision days later as customs officials struggled to process and collect tariffs on a mountain of low-value packages.
The end of de minimis, as well as Trump’s new 145% tariffs on China, has forced Temu to raise prices, suspend its aggressive online advertising push and now alter the selection of goods available to American shoppers to circumvent higher levies.
A Temu spokesperson confirmed to CNBC that all sales in the U.S. are now handled by local sellers and said they are fulfilled “from within the country.” Temu said pricing for U.S. shoppers “remains unchanged.”
“Temu has been actively recruiting U.S. sellers to join the platform,” the spokesperson said. “The move is designed to help local merchants reach more customers and grow their businesses.”
Before the change, shoppers who attempted to purchase Temu products shipped from China were confronted with “import charges” of between 130% and 150%. The fees often cost more than the individual item and more than doubled the price of many orders.
Temu advertises that local products have “no import charges” and “no extra charges upon delivery.”
The company, which is owned by Chinese e-commerce giant PDD Holdings, has gradually built up its inventory in the U.S. over the past year in anticipation of escalating trade tensions and the removal of de minimis.
Shein, which has also benefited from the loophole, moved to raise prices last week. The fast-fashion retailer added a banner at checkout that says, “Tariffs are included in the price you pay. You’ll never have to pay extra at delivery.”
Many third-party sellers on Amazon rely on Chinese manufacturers to source or assemble their products. The company’s Temu competitor, called Amazon Haul, has relied on de minimis to ship products priced at $20 or less directly from China to the U.S.
Amazon said Tuesday following a dustup with the White House that had it considered showing tariff-related costs on Haul products ahead of the de minimis cutoff but that it has since scrapped those plans.
Prior to Trump’s second term in office, the Biden administration had also looked to curtail the provision. Critics of the de minimis provision argue that it harms American businesses and that it facilitates shipments of fentanyl and other illicit substances because, they say, the packages are less likely to be inspected by customs agents.
— CNBC’s Gabrielle Fonrouge contributed to this report.
WATCH: Trump tariffs mean higher prices, big losses for Amazon sellers
Jeff Bezos, founder and executive chairman of Amazon and owner of The Washington Post, takes the stage during The New York Times’ annual DealBook Summit, at Jazz at Lincoln Center in New York City, Dec. 4, 2024.
Michael M. Santiago | Getty Images
Amazon founder Jeff Bezos plans to sell up to 25 million shares in the company over the next year, according to a financial filing on Friday.
Bezos, who stepped down as CEO in 2021 but remains Amazon’s top shareholder, is selling the shares as part of a trading plan adopted on March 4, the filing states. The stake would be worth about $4.8 billion at the current price.
The disclosure follows Amazon’s first-quarter earnings report late Thursday. While profit and revenue topped estimates, the company’s forecast for operating income in the current quarter came in below Wall Street’s expectations.
The results show that Amazon is bracing for uncertainty related to President Donald Trump’s sweeping new tariffs. The company landed in the crosshairs of the White House this week over a report that Amazon planned to show shoppers the cost of the tariffs. Trump personally called Bezos to complain, and Amazon clarified that no such change was coming.
Bezos previously offloaded about $13.5 billion worth of Amazon shares last year, marking his first sale of company stock since 2021.
Since handing over the Amazon CEO role to Andy Jassy, Bezos has spent more of his time on his space exploration company, Blue Origin, and his $10 billion climate and biodiversity fund. He’s used Amazon share sales to help fund Blue Origin, as well as the Day One Fund, which he launched in September 2018 to provide education in low-income communities and combat homelessness.
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