Arm : Roadshow Slides

Arm Limited Q4 2018 Roadshow Slides

Arm Limited is a subsidiary of

1 v1 © Arm 2018 Technology trends that will redefine all industries

Artificial Intelligence in Autonomous Augmented Hyperscale cloud every device machines reality and connectivity

Security and Privacy

2 © Arm 2018 Arm defines the technology that will redefine all industries

Mobile and Networking Automotive Internet of Things Consumer and Servers and Robotics Artificial Intelligence in every device     Autonomous machines   Augmented reality   Hyperscale cloud and connectivity   Security and Privacy 3 © Arm 2018     Arm introduction

Global leader in technology licensing

• R&D outsourcing for semiconductor companies

Innovative business model

• Upfront licence fee – flexible licensing models

• Ongoing royalties on partner sales

• Technology reused across multiple applications

Long-term, secular growth markets >1,650 licences 23 bn Arm-based chips Growing by >100 shipped in 2018 every year >525 potential ~15% CAGR over 4 © Arm 2018 royalty payers previous 5 years Arm’s business model

Arm develops technology that is licensed to semiconductor companies

Arm receives an upfront license fee and a royalty on every chip that contains its technology

Business Development

1) Arm licenses 2) Partners develop technology to chips and ship chip Partners them to OEMs Technology SemiCo Arm License Fee Partner

Chip shipment OEM Customer Per chip royalty Chip payment 3) OEMs sell products containing Arm-based 5 © Arm 2018 chips Arm’s strategy

Maintain or gain share in long-term growth markets

• From mobile phones to networking infrastructure and servers to embedded smart devices and automotive

Increase value of Arm technology per smart device

• Invest in developing more advanced processors with higher royalty rates

• Physical IP and multimedia IP further increase Arm's value per chip

Explore and exploit new opportunities in emerging applications created by the Internet of Things

Invest to create a sustainable business, fit for the long term

• Create superior returns by developing new technology that will deliver increased profits and cash generation in the future

6 © Arm 2018 Arm’s main growth markets Mobile and Consumer Devices Networking & Servers Embedded Markets

$108bn $48bn $94bn TAM 2028 TAM 2028 TAM 2028

. Smartphones, tablets and laptops . Base stations, routers, switches, and . Automotive, white-goods, wearables, servers for cloud and data centres smart devices in industrial and utilities . Apps processor, modem, . Networks evolve to cope with increased . Microcontrollers, smartcards, embedded connectivity, touchscreen and image data at lower latency: virtualisation, connectivity chips sensors integration and programmability . 300 companies have licenced Arm . Growth coming from higher-value . Most major chip vendors have processors for use in embedded Arm technology such as Arm v8-A, announced Arm-based products computing devices octa core, multimedia

7 © Arm 2018 History of Arm Joint venture between Designed into first mobile Now all electronic devices can Acorn Computers and Apple phones and then smartphones use smart Arm technology

1990 1993 onwards Today

8 © Arm 2018 Smart devices contain many Arm processors Arm CPU Applications Processor chips can contain Apps Processor Chip Touchscreen and multiple Arm technologies Sensor Hub . Arm v8-A processor for OS and apps . Cortex-R controller for modem . Cortex-M controllers for peripherals WiFi . Arm Mali multimedia processors: Multiple cameras, GPU, video, display, camera, etc. front and rear . Arm physical IP SIM Sensor When new functions are added to smartphones it creates opportunity for new Arm IP Bluetooth Power Management Flash Controller

Cellular Modem 9 © Arm 2018 GPS Arm-based chip shipments 22.9bn 21.3bn 20 146bn 33% Arm-based chips shipped to date Market share in 2018* 15

5 powered SoCs shipped (billions) SoCs powered - Arm 0 1991 Calendar Years 2018 * Note that market share is lower than previous shown as market definition has been expanded

10 © Arm 2018 Previous years’ market shares 2010-2017: 20%, 22%, 27%, 28%, 31%, 32%, 35% and 34%. Arm's opportunity continues to broaden

100 Semiconductor industry continues to grow: Total industry* 8% by volume, 3% by value over past five years 90 Chips with processors** 80 ARM shipments

70 Proportion of chips with processors is increasing 60 over the medium term: 75% in 2018 50 40

Billions of Chips 30

Over the medium term, Arm is gaining share 20 within the “chips with processors” segment of 10 the industry: 33% in 2018 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

* Data source: WSTS, April 2019 and Arm, Calendar years Industry volume excluding analog and memory ** Arm estimates

11 © Arm 2018 From revenue to profits License and royalty revenues similar to prior year reflecting weakness in industry FY 2018 Revenues $m %revs Software and services growing >50% Licensing 547 30% following two acquisitions in mid-2018 Royalty 1,098 60% Software and Services 191 10% Cost increase as Arm accelerates investment Total 1,836 100% in R&D for future product developments

Costs ($m) 1,557 10% move in $/£ impacts profits by ~15% (forex impacts £ revenues and costs) Adjusted EBITDA ($m) 279

Operating Margin 15% Operating margins will be lower than in recent periods as investments grow faster than revenues Other expenses ($m) (1,442) IFRS EBIT ($m) 1,721 Includes sale of 51% stake in Arm China Excludes amortisation of intangibles related to the acquisition of Arm by SoftBank

12 © Arm 2018 Financial numbers aligned with SoftBank reporting periods (01 April 2018 to 31 March 2019) Qtr. ending Mar. 2019 – Financial summary Revenues ($m) Q4 2017 Q4 2018 Growth Licensing can fluctuate quarter to quarter. In Q4, Arm delivered a major new processor Licensing 156 213 37% triggering a revenue recognition event Royalty 269 247 -8% Software and Services 36 53 47% Royalty revenue growth declined, consistent Total ($m) 461 513 11% with weakness in wider industry

COGS ($m) 32 28 -13% Includes $16m from recent acquisitions of R&D ($m) 163 186 14% Treasure Data and Stream Technologies SG&A ($m) 160 175 9% Costs ($m) 355 389 10% Arm is continue to increase investment Adjusted EBITDA ($m) 106 124 17% in R&D capacity

Depreciation & amortisation ($m) 25 32 28% Other operating expenses ($m) 48 9 -82% IFRS EBIT ($m) 33 83 152%

13 © Arm 2018 Q4 Licensing: 32 is within the normal range The number of licenses for Cortex-M processors has been Historic licensing reduced since the introduction 60 of the DesignStart Pro (DS Pro) Average program in June 2017. Q1 = 16 DS Pro Cortex-M processors 50 Q3 Q2 Q3 Q3 are available for no upfront fee. 14 In Q4, 30 DS pro licenses were Q3 10 Q2 Q1 Q3 signed for Cortex-M processors 40 Q1 Q4 Average 10 Q2 = 9 Q2 5 Q4 30 Q4 Average Q4 Average = 5 Q4 Q3 Q2 = 4 Q4 Q1 Q1 Average Q2 = 4 20 Q1 3 Year 13 14 15 16 17 18 Cortex-A Cortex-R Cortex-M Mali

14 © Arm 2018 Licensing enables future royalties Arm signed 125 licences Q1 to Q4 2018

Arm’s current royalty revenues are derived from licences signed many years ago

Growing base yields royalty revenues over long period Significant Royalty Potential $600m from Recent Licences +125 >550 licences signed 1500 1994-2009 +141 $500m since Q1 2015 +113 2010-2014 >550 +180 $400m 2015 to Present 1000 ~550 >1,650 $300m

500 >30% of Arm’s most recent $200m ~550 licences are drivers of future royalty revenue

Cumulative Licences Cumulative ~550 $100m ~550 licences

0 Pre-2014 2015 2016 2017 YTD18 $0m H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 Financial Years 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 15 © Arm 2018 Calendar years Arm’s expanding opportunity 2018 2028 Market Share Market Value Market Value Mobile Applications $34bn processor 90% $47bn

Other mobile chips $18bn 40% $30bn$23bn

Infrastructure Networking $15bn 30% $20bn Data Center/Cloud $20bn 4% $28bn

Automotive IVI and ADAS $7bn 75% $20bn $19bn

Other automotive 10% $5bn chips $12bn

16 © Arm 2018 Arm’s expanding opportunity 2017 2026 Market Share Market Value Market Value

Embedded Controller in 90% $7bn IoT Devices $30bn$20bn Microcontrollers/ 25% $18bn SIM Cards $22bn

Other Consumer 40% $12bn Markets Electronics $37bn

Other chips 35% $15bn $21bn All chips with 33% Total Market processors $150bn (current TAM) $250bn All addressable chips (future TAM) 25% $165bn $20bn $270bn

17 © Arm 2018 Establishing Arm China JV in Fiscal Q1 2018 Building a bigger business; built on strong foundations >150 10bn Licensees Chips shipped by Chinese partners using Arm processor technology

Chinese95% designed SoC based on Growthx140 in volume shipment by Chinese Arm processor technology partners 2006-2017 Arm China will be able to better access new local technology opportunities, especially in server, smart meter/grids and IoT

18 © Arm 2018 Establishing Arm China JV in 2018 Building a bigger business; built on strong foundations

Arm China JV establishment was initiated in >150 341 early Q1 2018 and completed at the end Q1 Customers to novate from Employees transferred Arm Limited to Arm China to Arm China in Q1 Novation (transfer) process or historical contracts resulted in a delay to contract signing in the H1 2018

~20%Arm’s revenue came from 10Licenses signed-20 in a typical As expected, licensing completely recovered China in 2017 quarter with Chinese customers in H2 2018, and finished ahead of target Significant proportion of future revenues will be passed back to Arm Limited

19 © Arm 2018 Investment strategy Arm's current business

Arm develops intellectual property (IP) blocks which are used in silicon chips Our partners combine Arm IP with their own IP to create complete chip designs We earn license fees when we deliver Arm IP to our partners and royalties when our partners ship chips that contain Arm IP Highly profitable and cash generative

20 © Arm 2018 Accelerating investment Investing to create to increase share gains new revenue streams

. Arm Pelion IoT Platform SaaS business . Early-stage investment but many years in research . Securely connect and manage any device, using any communications technology, supporting any cloud platform . Device Management: secure device identification, on-boarding and configuring . Connectivity Management: manage IoT networks using standard-based comms . Data Management: Ingestion and aggregation of data

Arm Pelion Partners

Generating profits and cash Arm Pelion to be reinvested

21 © Arm 2018 Arm IoT Services Secure and scalable innovation from ~1,000 Device to Data customers

> 30 PB of customer data managed > 2 million records per second ingested 140+ > 300K queries per day Ecosystem partners 55 TB network data flow per month Smart grid technology partnership with KEPCO, the largest electric power utility in 350k+ South Korea Developers China Unicom partnership for China based services 22 © Arm 2018 Pelion IoT Platform Overview Partner and Customer Pelion IoT Platform Business Applications Systems SaaS Data Management Services Marketing One Social View of Visualization Database Unified Data operational view Asset Visibility Marketing Business Intelligence Energy Ultra-constrained Device Management Services Management gateway Identity Access Mgt. Lifecycle Mgt. One Unified Workflow SaaS View of Security constrained Devices Model Smart Lighting Rich node Email

satellite Connectivity Management Analytics Industrial Automation SIM Mgt. ServicesNetwork Service One Unified Orchestration Quality View of Identity LPWAN Networks Machine Learning In-home Patient Care Cellular

Deployment diversity Simplification for faster time to value Business value creation

2x Arm Cortex-M3

Arm Integrated SIM technology

Other data sources

Control of Recurring Device and IoT devices Data Management Fees OEM

Data collected Control of devices from IoT devices Data from devices

$2,000m 7,000 Until 2016 revenues grew faster $1,800m Revenue than costs as Arm constrained 6,000 $1,600m Total Costs investment in R&D to enable 5,000 increasing profits $1,400m Adjusted EBITDA

$1,200m For the current phase of Headcount 4,000 investment Arm expects costs to $1,000m grow faster than revenues 3,000 $800m

$600m This should yield even greater 2,000 profits in the future $400m 1,000 Note: Headcount in 2018 excludes 341 $200m employees transferred to Arm China Joint $0m 0 Venture in June. By the end of Fiscal 2018, 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Arm China had 439 employees Fiscal years

Arm has $1.4bn of net cash and no debt Cash balance maintained as sale of Arm’s stake in the Arm “Now is the time to be sowing, not harvesting” China Joint Venture was balanced with the acquisition of . Rate of investment is discretionary and under Treasure Data Inc. and Stream Technologies Ltd. Arm's control $1,600m

$1,400m . SoftBank has asked Arm to accelerate investments and to increase risk appetite $1,200m $1,000m . All costs are expected to be financed from IP $800m business’ revenue streams $600m

. During this accelerated investment phase, $400m

costs are expected to grow faster than $200m revenues $0m 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Arm incurs R&D costs many years before revenue starts Multiple processors in development

Research into 64-bit computing First generation started in 2000 of processors

Architecture development and Arm v8-A processor design Development starts

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Arm incurs R&D costs many years before revenue starts

Research into New technology announced 64-bit computing Technology Recurring delivery revenue started in 2000 First starts technology agreements New technology New technology development starts Initial development development starts Initial development phase Investment ramps phase

0 1 2 3 4 5 6 7 8 9 10

Revenue continues for many years after the investment phase, yielding high profits over time

29 © Arm 2018 Investment strategy Investing in people, infrastructure to create new products Costs are higher in 2018 as Arm expands R&D capability

Cost increases are expected to be consistent with increases in headcount $8m ($15m) $389m $33m $355m $7m

Q4 2017 2% increase Increased Annual Impact of Q4 2018 in headcount IT, facilities Bonus stronger Costs and other Accrual dollar Costs 30 © Arm 2018 investments Arm Investor Relations Contact

Contact Title Contact

+44 1223 400796 Ian Thornton Head of Investor Relations [email protected]

More content available on • Arm’s website: arm.com/ir • SoftBank Group’s website: softbank.jp/en/corp/irinfo/