At the launch of Tech City in 2010 David Cameron stressed that he wanted the initiative to help encourage UK ideas and entrepreneurs and pointed to Facebook as the perfect example of the type of business the area could create. Unsurprisingly given Facebook’s share price issues it isn’t a name that he’s been bandying about recently but the message was clear – content, and web-based businesses are the future for UK technology.
Unfortunately that message is wrong on a whole stack of levels. There is a place for content/web-based businesses (unless it is yet another social network)
ARM Breakout Boards (Photo credit: Randomskk)
but as part of a varied ecosystem that spans different technologies rather than as the figurehead of UK Plc. Content-based businesses tend to be lean (so not many high powered jobs), use resources across the world (so not a huge investment in the UK) and can be run from anywhere, making them ultra-portable. Therefore you need a lot of them to create critical mass and actually deliver measurable benefits to the economy, rather than providing appealing photo opportunities.
In contrast, national politicians are a lot less effusive about companies like ARM that provide the technology that underpins real, physical products. In many ways ARM is essentially a software company – it doesn’t make its own chips, licensing its intellectual property to others around the world. And doing so very successfully – with over 20 billion ARM-based chips shipped to date it dominates particular sectors, such as smartphones and tablets.
Comparing ARM and Facebook throws up some interesting statistics:
- The US social network has more employees (nearly 4,000 compared to ARM’s 2,000)
- At current share prices Facebook is valued (even now) at $41 billion; in contrast ARM is worth a paltry $12 billion.
- 2011 turnover for ARM was $781m, dwarfed by $3,711m for Facebook
- Profits for the same period were $2,851m for Facebook, $350m (£221.7m) for ARM
- But taking a closer look Facebook’s gross margin in 2011 was 76% compared to ARM’s 94.4%
Clearly Facebook is bigger, richer and earning more money – even if it isn’t necessarily paying full tax on its UK earnings. But once you add in the ecosystem of companies developing applications/chips around each company then the picture changes. ARM is at the heart of an enormous global community of chip companies, design houses and embedded engineers, all developing using its products – and paying royalties on everything they create. It has spawned a number of spin-offs, in Cambridge and beyond, and essentially created a business model that is now widely copied by other fabless semiconductor companies.
So looking beyond the hype, I firmly believe that ARM has delivered much greater benefits to the UK economy than companies like Facebook. It has built up our skills and innovation base, contributed to the formation of the Cambridge technology hub and created opportunities for highly paid, sought after jobs. Now’s the time for politicians to recognise ARM’s success and use it as an example of what UK tech should be about, rather than solely focusing on the latest trendy web-based businesses.
