Comment: ARM must beware the 'tied-selling' trap

ARM (Cambridge, England) gives royalty discounts when additional processor cores are integrated on a single chip. In the era of multicore processor architectures this clearly makes sense as it is applied to dual-core and quad-core Cortex-A9s and even heterogeneous aggregations of ARM cores. However, Warren East, CEO of ARM, has said that discounts are also extended when a chip company includes a Mali graphics core alongside an ARM general purpose processor cores.

And therein lies the danger.

Now a discount could be seen as wholly reasonable, but if potential licensees came to believe that working with another graphics core provider could hurt their access to ARM's main processor cores or even just to roadmap information and call backs from engineers, then ARM could find itself being criticized — or even prosecuted — for "tied selling." Such allegations have plagued Intel, the world's largest and most successful chip vendor, in the past.

ARM's main rival in the graphics core licensing business is Imagination Technologies Group plc (Kings Langley, England). Imagination has been licensing its graphics cores for a considerable time and as a result has started to enjoy success. As ARM CEO East said earlier this month, "We are the new kid on the block. Imagination is very much the incumbent." Indeed prior to acquiring its own graphics capability ARM was active in selling the virtues of ARM and Imagination cores working in tandem. "As such we only have ourselves to blame," East said.

IP core royalties are usually set as a percentage of the chip price. East told analysts at conference to discuss ARM's most recent financial results: "if you integrate a Mali core on the same chip as another ARM microprocessor then it's similar to integrating two ARM microprocessors on the core. Typically both cores come under royalty and the second one has a discount. And perhaps because of the special-purpose functionality in the Mali core, the discount is probably not as great as it would be for a second general-purpose ARM microprocessor."

With regards to discounting policy it sounds like ARM is treading on the right side of the tied-selling line, but such debates can become highly nuanced and a case may not hinge on pricing alone. ARM could even come up with a pricing policy that showed all discounts accruing on the main processor, but that would not necessarily exonerate it.

I am sure that ARM will have continued success with its Mali cores. And when that happens ARM could argue that by controlling its own graphics architecture, the physical intellectual property underlying it, as well as how it integrates with its own general-purpose processors it has created technical advantages in the market place that it should be free to exploit. A rival might argue that ARM was exploiting its dominance (at least in some markets) to force customers to take the Mali graphics core as well as a general-purpose core and at the same time exclude the competition in an abuse of market position.

Of course there is an argument that being attacked over antitrust issues is a nice problem to have, as it means a company is successful. The corollary is that when a company is successful it becomes worth suing. Which is why ARM must do all it can to avoid falling into the tied-selling trap.

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