Management Report on the Analysis of the Strategic Situation of ARM Holdings - Essay Example

Management Report on the Analysis of the Strategic situation of "ARM Holdings" Contents Contents 2 Executive Summary 4 Introduction 4 Strategic Position of ARM Holdings 5 Industrial and Environmental Analysis of ARM Holdings 6 Analysis through Porter’s Five Forces Model 6 Bargaining Power of Buyers 7 Bargaining Power of Suppliers 7 Existence of Substitute Products 8 Threat from Existing Competitors 8 Threat of New Entrants 8 Analysis based on PEST 8 Political Factors 8 Economic Factors 9 Social Factors 9 Technological Factors 9 Analysis of the Strategic Position of ARM Holdings 9 Positioning and Differentiation Strategy 9 Value Chain Analysis 10 Recommendations and Conclusions 12 References 13 Executive Summary ARM Holdings a microprocessor developing company in Britain tends to develop effective microprocessors through innovative technologies that would help in reducing the impact on energy resources. However the company tends to produce such microprocessors for mobile and application phones and not for personal computers, the market for which is dominated by companies like Intel. In this light the paper herein tends to evaluate the strategic position of the company in the United Kingdom microprocessor market through the conducting of effective analysis based on strategic tools. The paper also tends to render effective recommendations at the end based on the inferences drawn from the strategic evaluation. Introduction ARM Holdings located in Britain focuses on the production of microprocessors for cellular and application phones and gadgets. The microprocessors designed by the company mainly gain on two fronts. Firstly such microprocessor helps in reducing the use of energy resources and secondly in helping in the speedy transfer of information through the internet medium. However the company fails to gain a strong foothold in the development of microprocessors for personal computers where companies like Intel have gained a strong platform (Rooney, 2012). The paper herein tends to analyse the strategic position that the company has in regards to the region of United Kingdom using separate strategic tools. The main objective of the report is to understand the strategic initiatives that ARM Holdings takes to gain a formidable stand in the microprocessor market in United Kingdom. Herein the paper focuses on the business and gross environment of the company in regards to the United Kingdom market for microprocessors and then endeavours to understand the strategic initiatives taken by the company in that regard. In the first step the paper focuses to understand the strategic position of the company in regards to its different competitors operating in the United Kingdom market. In the second phase the company focuses on the analysis of the industrial and macro environment of the company in regards to the United Kingdom market to understand its relative position in the enhanced market. Finally the paper moves on to discuss the strategic elements incorporated by the business corporation to sustain its competitive and business position in the market. Here the paper incorporates separate strategic tools to evaluate the position of the company in the United Kingdom microprocessor market. After conducting the evaluation of the strategic position of the company in the United Kingdom region in regards to other competitors and general and specific business environment the paper tends to draw effective recommendations. In regards to recommendations it is stated that how the company can help develop on its business and gain a larger market in the region. Strategic Position of ARM Holdings ARM is found to have gained a strong hold in the global market for microprocessors and semiconductors. The company focusing on the production of small chips has gained a large amount of popularity in the cellular phone market with its expanded use in the mobile phones. Moreover the demand for the chips produced by ARM Holdings also is gaining hold for being used in Tablets and other small personal computers owing to its attribute of low energy usage. In that the company tends to compete with an established market player like Intel that is also gradually endeavouring to gain an entry into gadgets like Tablets and other Smart Phones. One of the key strategic moves taken by ARM Holdings to gain and sustain a strong foothold in the microprocessor industry is the selling of licenses of the different architectures of such chips. Thus firstly the company gains a niche market in the production of low energy usage microprocessor chips and secondly the company also gains on the fees and royalties paid by the companies to which such licenses have been sold. The costs incurred pertaining to the production and development of such microprocessor chips are retrieved by the company from the market through the sale of such licenses, where the ratio stands as to cost of one chip produced for revenue of ten licenses sold. In regards to revenue it is found that ARM Holdings during the initial nine months of 2011 earned total revenue of around 354 million Pounds. The company happens to gain such large amount of profit from the microprocessor market through the incorporation of views of designer bodies for tools used in making of chips, manufacturing bodies for such devices and also of other software concerns. The integrated view and recommendations gained from such eminent sources helps in enhancing the potential of ARM Holdings’ microprocessors. Again the energy efficient chips that gained increased attention in the mobile and application phone market also is found to gain demand from the server market. The server machines are being built with the use of such energy efficient microprocessor chips like that produced by ARM Holdings to help reduce the consumption of electricity. Thus, ARM Holdings through its strategic initiatives of producing energy efficient microprocessors having multiple usages tends to gain a large amount of popularity in the embedded microprocessor market (Clara, 2012). Industrial and Environmental Analysis of ARM Holdings Analysis through Porter’s Five Forces Model The Porter’s Five Forces Model as propounded by Michael E. Porter tends to analyse the industrial environment of a company based along relevant parameters like potential of consumers, potential of suppliers, existence of substitutes, and finally the threat imposed by existing and new competitors. Diagrammatically the model can be reflected as follows. Figure 1 (Source: Hill and Jones, 2009, p.43) Bargaining Power of Buyers The consumers in the microprocessor market are found to reflect high amount of bargaining power in regards to gaining energy efficient microprocessor units to be used in the mobile phones and other application phones. Further the consumers are also demanding microprocessors of very small nanometres like 20 and 14. In regards to such consumer demands the companies like ARM Holdings is found to produce both energy efficient products and also microprocessors of around 14 nanometres thereby reducing the bargaining power of consumers (Winkler, 2011; Moya, 2010). Bargaining Power of Suppliers ARM Holdings is found to gain the supplies of such microprocessors by selling of licenses of its microprocessor architectures to the development firms. The company in turn generates a royalty upon each of the licenses sold to the development firms. These supplier groups then have to pay a fee for firstly the gaining of the licenses and also a certain percentage amount of 1 to 2 percent for royalty generated against each chip developed. In this fashion the company tends to exert influence on the supplier groups (Neate, 2011). Existence of Substitute Products In regards to the emergence of substitute products for the energy efficient microprocessor units like those produced by ARM Holdings, microprocessors for mobile phones are being built that would depend on alternative energy sources like solar energy. These microprocessors built on alternative technologies thus stand out to be effective substitutes for the energy efficient microprocessor units (Morley and Parker, 2010, p.667). Threat from Existing Competitors Companies like Intel, AMD, Apple and Acorn are posing a lot of competition in the market for semiconductors and microprocessors and thereby render threat in gaining hold of the market for ARM Holdings (Allen, 2010). Threat of New Entrants The entry barriers for the new entrants to the microprocessor industry is quite high in that the existing competitors gain strategic potencies through partnership agreements amongst each other in producing effective microprocessors (Campbell, 2011). Analysis based on PEST Political Factors In United Kingdom the production and sale of microprocessors gains importance owing to the ability of it to store large volumes of data that can be retrieved later on. Thus government agencies help in the expansion of such businesses. Economic Factors The manufacturing industries in United Kingdom are encouraging the use of microprocessor enabled robots to help in effective and fast conducting of their operational assignments. Thus the growth of microprocessor industry in the region also accounts an economic reason (BIS, 2010, p.38). Social Factors The people in United Kingdom have become more conscious in regards to conservation of energy and also in gaining access to developed technologies pertaining to the electronic and cellular gadgets. Thus energy efficient microprocessors help them in fulfilling their needs (Green, 2011). Technological Factors In the technological front, the microprocessors developed by ARM Holdings needs to be further developed to gain entry into the personal computers market that is governed by companies like Intel (Clara, 2011). Analysis of the Strategic Position of ARM Holdings Positioning and Differentiation Strategy ARM Holdings through the use of specific strategies has enabled to gain a differentiated position in the United Kingdom market. It is found that the microprocessors produced by the company have gained use in services like education and healthcare. Moreover owing to its low energy usage the microprocessors are also gaining demand from sectors like server manufacturers (Gold, 2011). The company is also focusing on the production of low nanometre microprocessors that would help in the speeding up of information transfer activities. Owing to its low energy usage the microprocessors produced by ARM Holdings gain a high position in the cellular industry market against competitors like Intel, Apple, and Acorn. The position of the different companies producing microprocessors in regards to the United Kingdom market for mobile phones have been depicted below. Figure 2 Position of Microprocessor Production Companies in the Cellular Industry Value Chain Analysis The value chain analysis of a company includes both primary and support functions. In regards to the primary activities the company needs to take care of its warehousing functions and other marketing and service related elements. The support functions of the company are comprised of human resources and technological elements and also the infrastructural and other procurement processes and resources. The above understanding of the value chain analysis can be represented in a diagrammatical fashion as follows. An analysis of the value chain systems in regards to ARM Holdings reflects that the concern operates based on a potential of 2000 people. Further the company works on outsourcing the manufacturing functions in regards to the microprocessor units to external firms. In that the company works on the creation of licenses pertaining to the microprocessors and thereby tends to gain on fees pertaining to the sale of licenses and also on the basis of royalty fee rendered by the outsourcing firms. In regards to the services the company generates effective services in the domain of entertainment, education, healthcare, applications for storage and security and other such areas. ARM Holdings works to render such services by operating in the technological development arena producing microprocessors, high speed internet connectivity software and other developmental tools and software. Thus the value chain systems of ARM Holdings are reflected to operate in an integrated mode to render best and effective services to its consumer base (Knowles, 2010). Figure 3 (Source: Knowles, 2010) Recommendations and Conclusions From the above analysis it is found that ARM Holdings focuses on the development of microprocessors for mobiles and application phones. Again for its low energy usage attribute the microprocessors also gains utility in regards to servers and other high energy consumption devices. However the company must work in manufacturing microprocessors for use in personal computers which is dominated by companies like Intel. Through such actions the company can help in gaining a larger market share in the microprocessor market. Again the company is found to outsource its manufacturing functions of microprocessors to external manufacturing agents called as foundries. Though the company works on selling licenses of such products and thereby gaining on both fees and royalty yet it must be taken that the company can better manage the manufacturing functions had they been conducted in their own setting. Thus both the cost and time in regards to the production and dispatching of such microprocessors can be effectively reduced. References Allen, K., 2010. Chip designer ARM said to be in Apple’s Sight. Guardian Unlimited. BIS, 2010. Manufacturing in the UK: An economic analysis of the sector. [pdf]. Available at: http://www.bis.gov.uk/assets/biscore/business-sectors/docs/m/10-1333-manufacturing-in-the-UK-an-economic-analysis-of-the-sector. [Accessed March 23, 2012]. Campbell, P., 2011. Strong Arm boosted by Apple tablet. Daily Mail Clara, S., 2011. VeriSilicon Licenses a Wide Range of ARM Technology for Advanced Consumer and Embedded Applications. Business Wire. Clara, S., 2012. Space invaders. The Economist. [online]. Available at: http://www.economist.com/node/21542402?frsc=dg|b. [Accessed March 23, 2012]. Garside, J., 2012. Apple chip designer Arm Holdings beats forecasts. Guardian Unlimited. Gold, D., 2011. ARM Holdings Chart Reaches A Crossroads; Former Leader Clawing Back; U.K.-based chip designer builds stage 1 base, but dont forget that climax top. Investors Business Daily. Green, T, 2011. ARM takes battering from Apple falling short of forecasts. Evening Standard. Cengage Learning. 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