Strategic Situation Analysis of ARM Holdings - Coursework Example

? Strategic situation analysis of ARM Holdings Table of Content Introduction 3 Industry or Business Environment Analysis 3 PESTEL Analysis 4 IndustryLife Cycle 6 Porter’s Five Forces Analysis 7 Company Analysis 9 Positioning 9 Differentiation 10 Value Chain Analysis 10 Critical appraisal of the strategy 10 Sustainability of Competitive Advantages in the industry 10 Conclusion 11 Reference 12 Introduction ARM Holdings is the leading semiconductor intellectual property producer as well as supplier in the world. So, it supplies the heart of many digital electronic products. ARM is an UK based company and its headquarters is in Cambridge, UK and has a worldwide business operation. The company strongly believes in innovation and follows an innovative business model. Instead of their own cost associated manufacturing of semiconductor business, they licence their own designed technology to other semiconductor manufacturers across the world and they utilise the designs to make innovative low energy chips for modern hi-tech electronic devices (ARM Ltd, 2012). This business report contains an in-depth analysis of some important areas like the current strategic situation of ARM Holdings which includes analysis of the industry or sector which has the key findings of current scenario, opportunities, challenges, future growth etc. Analysis of the organization’s current business strategies like SWOT analysis, value chain analysis, market positioning, product differentiation etc; critical appraisal of these strategies which results the key findings of the important business characteristics like sustainability, competitive advantages and extent of outcome of these strategies with respect current industry scenario will also be discussed in this report. Industry or Business Environment Analysis Companies in the microprocessor industry make hi-tech chips which are the core or heart of many digital electronic products which include but are not limited to computers, mobile phones, calculators, digital cameras, video game consolers and PDAs. First microprocessor which was invented for commercial use was Intel 4004 (Roony, 2012). Some of the top blue chip companies can be found in this industry and they have been continuously producing innovative chips which have brought remarkable results in today’s advanced digital electronics world. The microprocessor industry has been growing with a single objective of delivering smaller, faster and cheaper chips. The companies in this industry live or die only for these objectives and this also is the main motivating goal for these companies. The benefit of inventing tiny chips is very simple; it is for compact packaging of more transistors onto a single chip i.e. same chip can be used for multiple purposes and no need of different chips for different processes. More the number of transistors in the chip, faster is the process. The top companies’ competition and new technology innovation have lowered the unit cost of production of chips and the price has been continuous falling down. Microprocessor industry has been growing by the innovative contribution of some leaders in this industry like Intel, AMD, ARM, IBM and VIA (Winkler, 2011). PESTEL Analysis PESTLE Analysis can show the overall business environment of this industry to find the challenges the companies are facing and the opportunities they have in present and in near future. Political: In microprocessor industry, effective practice on IP protection has been started due to the effective presence of many copy cat small companies. Making of strong IP policies by the companies as well as the government in a country can positively influence foreign investment as well as encourage domestic investors. Government and the political environment of a country should ensure about efficient IP protection and the policies regarding this issues. This policy should act as a protector of IP violations to the large companies who have been continuously inventing new technologies and can’t sell into the market in actual worth of that because of many pirated companies who reengineering those on those hi-tech chips and producing similar kind of product without any R&D. So, government and political environment of the association of the big inventors as well as government are making strong policies which include provision for criminal prosecution (Knowles, 2010). Economical: The microprocessor industry is economically very strong as it runs through some of the financially healthiest companies in the world. Recent digitally advanced and electronically fast world depends on the continuous innovation of these companies so they have wide client base across the world and this made this sector financially very strong as all sectors or industries’ business are the clients of these leading microprocessor companies (Morley & Parker, 2010). Social: Society has been getting blase by this industry as its innovation has made living easier and fast of the people in the society. So the product i.e. technology which the industry provide to the people are well accepted and high demanded. Technological: Technology is the key mantra of this industry because it produces the heart of any technology which other industries use. So technologically it needs to be much advanced as it is the only invent of new technology upon which technological growth in some other industries based on (Knowles, 2010). Environmental: The leading companies in this industry like ARM are committed to practice environmentally sound business operations and the health and safety of the talents whose talents and expertise results the innovation of smaller and faster chip. These companies do practice many CSR activities for their internal employees as well as for the society and environment to keep a sustainable growth of individual company as well as the company. So the business environment in microprocessor industry is digitally advanced and state-of-the-art production houses and the technology used can lead any other industry in the world. Industry Life Cycle Figure 2: Industry Life Cycle (Hill & Jones-a, 2009, p.57) The industry is still in growth stage at present with having a tremendous growth in last decades. At the introduction level one or two leader was there in this industry and they had taken a substantial risk to new industry and have become the leading player like Intel. They got advantages of a monopoly market and used to get good percentage of return on investment. Now there five or six leading players whose continuous innovation makes the world digitally advanced and their product have been getting a huge demand. This industry is getting benefited by the a increasingly increasing demand of newer technology day by day as the use of technology has been increasing the productivity of business as well as individuals. The leading companies is are earning in increasing percentage and it this scenario is reflected by the long term stock price increments of these companies and the investors’ interests in this sectors shows the prospective future growth of this industry (Hill & Jones, 2003). Porter’s Five Forces Analysis Figure 1: Porter’s Five Forces Model (Source: Lima, 2006) Threat of New Entrants: In early days the design engineers having innovative ideas used to leave one company and start up another in the microprocessor broadly semiconductor industry. As the industry grows the initial investment for setting up a new factory of chip fabrication has been increasing in large multiple. So the entry level cost makes it very painful for new entrants and even to compete with the top players with state-of-the-art business operations is likely impossible. It is the great advantage of the established players in the industry and it has become barrier to entry for the new entrants. Some new companies’ success has made it possible like ‘Fabless’ chip maker. It has become successful and proven that factory ownership is not the barrier to entry (Green, 2011). Supplier Power: For large microprocessor companies, supplier power is low because of availability of large no of supplier. The chip manufacturer and the supplier market is likely monopolistic competition where the firm are of limited number and large number of supplier is there in this market. So the big companies can negotiate with a supplier to a minimum amount. The production of final microprocessor for a commercial use is becoming very expensive as it involves a high level of innovation and use of higher technology, so the smaller companies is becoming highly dependent on umbrella of large foundries. The cutting-edge equipment suppliers and the merchant foundries are enjoying a high level of bargaining power (Gold, 2011). Buyer Power: As the industry is dominated by few large giants and they operates business likely as a cartel where the firms get the monopolistic advantages in the case of innovation and supply as huge number of business buyers depends on those firs. So the buyers have very limited negotiation power (Garside, 2012). Threat of Substitutes: Threat of substitute depends on product segmentation. Though the protection process of intellectual property has minimised the threat of substitute chips, the small companies has started similar product at lower prices with the negative help of piracy or becoming a copy cat (Clara, 2012). There are two different companies are there in this sector; one spends millions of dollars on research and development to invent and then market smaller and faster chips, at the same time another company is doing reverse engineering on those products to market similar product with same function for a fraction of the original price (Clara, 2012). Industry Competitors: There are intense rivalries between the companies in this sector. The main competition is on the R&D department and the main pressure goes to them to market smaller, faster and cheaper chips than previous one which launched few months before. This pressure extends from the R&D to design labs, foundries and also distributors. These market conditions results an industry which needs to produce cutting-edge technology in a volatile business conditions (Campbell, 2011). Company Analysis ARM Holdings is the leading semiconductor intellectual property producer as well as supplier in the world. So, it supplies the heart of many digital electronic products. ARM is an UK based company and its headquarters is in Cambridge, UK and has a worldwide business operation. The company strongly believes in innovation and follows an innovative business model. Instead of their own cost associated manufacturing of semiconductor business, they licence their own designed technology to other semiconductor manufacturer across the world and they utilise the designs to innovative low energy chips for modern hi-tech electronic devices (ARM Ltd, 2012). Positioning ARM has achieved above 95% penetration in the semiconductor market among which a large mobile manufacturing industry is the key clients. The technological de3sign design work which ARM does deeds a huge amount of investment on R&D. Every semiconductor company have to spend in the range of $50 million to $150 million to produce the similar worth production of ARM. It means extra $20 billion for the annual cost for the total industry ARM has been reducing by designing once and then licensing many times of that design. So this the type of leading position ARM is having in the industry because $20 billion cost saving for an industry every in not at all a small amount which results a comfortable price of the microprocessor as the existing and the new arrivals electronic devices like tablet pc in the market and these are being affordable to millions of people in the demand. So the company has key market position in the industry (BIS, 2010). Differentiation Though, ARM Holding is known for world’s leading semiconductor IP supplier, it has wide range product and service differentiation. Products including different types of system IPs, processors, multimedia software, secure services, engineering tools etc made the company to cover a wide range of demand of other related industry business. These product differentiations has minimised the risk of sustainable demand of a particular type of product or services in the market which can maintain the revenue growth of the company (ARM Ltd, 2012). Value Chain Analysis ARM adds value to its business by recovering cost from the revenues of future and existing licence of new technology. This brings the sustainable profit to the investors by chain of earning process which has limited risk for demand of products which become lower priced after few months in the market because of piracy (Allen, 2010). Critical appraisal of the strategy The key business strategy of ARM is technological advancement to gain global market share in terms of innovation. They implement competitive strategies for long term growth in the market like mobile phones, advanced digital devices and consumer electronics Sustainability of Competitive Advantages in the industry There are some intellectual growth drivers the company has which results a long term and sustainable growth of the company. ARM technology has been increasing penetration in the market and is gaining a loyalty for the brand name from the business customers like mobile and digital device manufacturer and as well as from the individual consumers who finally use the products or services because those electronics products are becoming integrated only because of the integrated central part i.e. the microprocessor or chips. Conclusion Effective implementation of extended business model ARM can is innovating additional types of advanced technology, generating strong royalties to the brand from a single multipurpose hi-tech microprocessor. The company’s financial policies and objectives can balance the essential need for continuous investment inflow to generate long term sustainable growth for the company. The value to per consumer is increasing day by day with the spread of digital embedded of devices across the world. Reference ARM Ltd. (2012). Company Overview. [Online]. Available at: http://ir.arm.com/phoenix.zhtml?c=197211&p=irol-homeprofile. [Accessed on March 26, 2012]. Lima, T. (February 25, 2006). Michael Porter’s “Five Forces” Model. [Online]. Available at: http://www.cbe.csueastbay.edu/~alima/courses/3551/murdercleaners/fiveforcesporter.htm. [Accessed on March 26, 2012]. Allen, K. (2010). Chip designer ARM said to be in Apple’s Sight. Guardian Unlimited. BIS. (2010). 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