Rising component prices are one reason why future smartphones are expected to be pricier, but ARM is contemplating a decision that may affect their value all the same. According to the latest report, instead of charging manufacturers like Samsung and Qualcomm a percentage of royalties for silicon, the British firm now wants to charge a sum according to the price of the entire handset.

ARM’s latest change in business strategy is likely due to the upcoming IPO that is said to be held in New York this year

For those that do not know, let us explain ARM’s business model. The company charges a percentage in royalty for chipset makers to license its chip designs, which in this case, would be its Cortex lineup. Even modified chip designs that Apple uses for its A-series and M-series are based off on ARM’s licenses, meaning that it is still paid a royalty. However, this business practice might see a shift, according to Financial Times, and it is a move that will not favor ARM’s customers.

Instead of charging a percentage of each chipset sold, ARM could now charge manufacturers a percentage of the smartphone’s entire price. This means that companies like Samsung, Google, and several others may either have to slash their margins while selling their handsets at the same price or pass those increases to consumers, who will have to pay more for each smartphone. Given that the global economy is not in the best shape, it is difficult for consumers to pay a high price for a device, and that can mean overall shipments can decrease further.

Tipster believes that this decision may not affect Apple

The decision to alter its royalty structure likely comes as ARM is expected to hold an IPO event later this year in New York. The firm has already informed its major clientele in advance regarding the possible shift in its business model, bracing them to make changes accordingly. However, Revegnuson Twitter appears to believe that Apple is unaffected by this change.

Rumor has it that Apple struck a ‘special type of agreement’ with ARM, meaning that it could possibly be the only rare entity that does not get affected by the new royalty calculations. Of course, phone makers and chipset manufacturers alike will have to strategize on their next step when it comes to a sustainable business, especially now that they will have to pay more royalties to ARM.

News Source: Financial Times