Status Update

Jun 14, 2014

Slides

Thank you for standing by, and welcome to the Armin Enterprise Networking Conference Call. At this time, all participants are in a listen only mode. And I must advise you this conference is being recorded today, on Monday, 23 June, 2014. I would now like to turn the conference over to your speaker today, Mr. Ian Thornton. Please go ahead, sir. Thanks, Tom. Good morning, good afternoon and good evening, everybody. This is Ian Thornton, ARM's Head of Investor Relations. This is a Q and A session with Colin Alexander, ARM's segment marketing manager, who is responsible for the enterprise networking markets. We were going to have Andrew Dunn, the analyst who covers ARM at RBC to Chris Collin. Unfortunately, Andrew will not be able to join us today. And so our own Phil Starks, ARM's Investor Relations Manager, will be sending the questions to Colin. Hopefully, you have already had a chance to review the slides and listen to the recording of Colin's presentation. If not, both slides and webcast are available on our website at www.arm.com/ir. If you want to ask a question during the call, we will not be opening up the lines, but instead you can email at investor. Relationsarm.com. And with that, I'll hand over to Phil. Thanks, Ian, and thanks for joining us today, Colin. Okay. Well, let's kick off by referring to the final slide in your webcast, which has the familiar table of ARM's addressable marketing network in 2018. You see here we've got target penetrations ranging from 20% to 60%, 60% being in mobile infrastructure, giving roughly 25% to 35% target share by 2018. I think today market share is around about 5%. So why do you think there's what's changed recently that needs ARM to be confident to reach these higher market shares in just a few years' time? Sure. I think so. A good question. I think there are a number of factors really. We'll start off with our processor IP that we've developed. So I think the performance levels on cores for handsets are now reaching the levels that can be used in enterprise. So I think the first core that we developed that was an example of that was the Cortex A15. Now combining that together with the interconnect we've got with the CCM, cash coherent networking line of interconnects, I think it means that we've got a very good product set to meet the needs for the infrastructure. I think one of the other factors is that the expense of supporting dedicated processor architectures has encouraged many of the semiconductor companies to swap from other architectures like, for example, PowerPC and NIPS to ARM. And there are a number of different examples of PIK3, So freescale, Broadcom and Cavium because there's strength in this particular market space. I think another example that backs up the increase in market share are the challenges that are being faced by some of the companies developing new equipment. And for example, let's pick up a multi radio access base station. So where today you may have multiple boards, multiple different devices on that board, Many of these have been collapsed into single system on chips for power and board savings. So I think that there's a perfect storm of change within the network today. And there are so many different changes happening at once. So for example, I mentioned multi standard radio base stations. There's also content delivery moving towards the edge of the network and the advent of cloud processing as well. I think we're well pleased to capitalize on these. And I think the final thing I'd like to pick up on are the devices that are today targeted towards the server network that can be targeted at the core. So the announcements that have been made by Broadcom with their Vulcan device and Cavium with their Thunder, I thought I think makes it highly possible that we can achieve these rates in the 2018 timeframe. So why do you think it is that ARM is winning market share in mobile infrastructure first? Does that have anything to do with our heritage in mobile devices? I think that typically the OEMs are well aware of our architecture. They're aware of Cortex A and Cortex R used in mobile phone modem technology and today also in the base station modems that are out in the radio head. So I think if you look at our low power heritage and power consumption being extremely important to target for the mobile infrastructure as well. I think that they're well aware of the benefits that we can bring in terms of lower electricity costs for powering their access network. And while we're on the subject of the access network, could you tell us roughly how many macro base stations are built each year and how many chips would be in each base station? What would the value of that semiconductor content might be? Sure. Well, today for the 3 gs and 4 gs network, there's around about 1,000,000 macro cells shipped. This ramps dramatically over the next few years up to at least €1,500,000 per year. And really, the average selling prices into these equipments are reasonably high at around about $150 each. Now potentially there could be 1 or more devices per base station depending on redundancy, resiliency, etcetera. Okay. So quick bit of mental business take that gives me a silicon content of about $500,000,000 a year coming from macro base stations. Referring back to that table, we've got a TAM of $4,500,000,000 from mobile infrastructure in 2018. So what are the types of equipment are in mobile Instructure? It's not just macro base stations. Sure. Well, there's the long vaunted heights topic of small cell, which I think is certainly going to become a reality in the next couple of years for a number of reasons that I'll touch on in a second. There is radiohead designs. That's basically the electronics that sits in the antenna and do some preconditioning of the traffic. And then there's equipment for the backhaul. So basically taking traffic from the base station and routing that into the core network. So why are small cells important? They're not simple devices. So I think that the throughput is similar to a macro cell. They may contain or be able to service fewer users, but they contain similar chips in terms of complexity to the macro cell. Now for each macro cell, it's estimated that there's going to be around between 5 to 10 small cells per microcell, with each one costing $80 to $100 Now the reason now for small cells is for basically the macro cells being used for coverage. The small cells are being used to supply capacity into the network. So the operators have been focused very much on providing coverage up until now. But now the focus is on providing the capacity, especially in LTE networks with higher frequencies. So roughly how many small cells would be for 1 micro base station? As you say, probably between 5 to 10 for a micro. Okay. And you say similar complexity of chips. So again, we're talking about $100 each time? Yes. Dollars €100,000,000 That gives us about another $1,500,000,000 of silicon consumption from small cells. Sure. So, yes, on to radio heads. So, the base station is involved with the conditioning of all the cellular traffic that basically comes from the backhaul. So the base station processes all the packet traffic that comes in from the backhaul, controls and allocates the air interface bandwidth per subscriber and is involved with the transitioning of subscribers from one base station to another. The radio head is part of the base station system, but it's partitioned much closer to the user. So it doesn't have to be in the base station box. It can be, but it doesn't have to be. And it contains an antenna and an amplifier. So the ARM subsystem is involved with the processing that's required to condition that signal for appropriate amplifier behavior. And typically, we can see between 3 to 6 radio heads per microcell, and each one containing a chip costing the arm part of the subsystem costing $40 to $50 And then moving on to backhaul. So there's roughly 2 backhaul links per microcell, each with an ARM subsystem chip costing $82 to $90 So roughly speaking, backhaul and radio heads adds about another $1,000,000,000 to the term, which still leaves a bit of the gaps. Is there anything else in there that's worth mentioning? Yes. Well, I think these numbers are going to evolve over the next 3 to 4 years. But I think that one large segment now is carrier WiFi. And I think that for large suburban areas, airports, campus sites, shopping malls, etcetera, typically Wi Fi coverage over cellular type areas. And this allows users Internet access for data surfing, but not necessarily for voice calls while on the move. So this is a huge market at the moment and many OEMs are integrating carrier Wi Fi into their next generation base station equipment. Ultimately, the function that WiFi handles today may be strongly impacted by the introduction of 5 gs and billions of IoT devices and the need to handle much higher bandwidth cellular voice and data traffic. Great. Thanks. For running through the sort of the market TAM. And should we move now on to the types of system of chips that Saum's partners are making? I mean, we've had a couple of product announcements recently. Could you give us an example of some of the things that our customers are building? What they're doing with the ARM processors? What their own IP are they adding in as accelerators around our cores? Sure. So for an average macro BTS today, we see the OEMs utilizing 8 to 16 Cortex A15 cores. Potentially, this could be the new 64 bit cores that we've just introduced the ARM Cortex A53 or A57. And these run the control plane, management plane and the data plane, so packet processing or MAC user interface scheduling. And many of these SOCs are using ARM's CCN interconnect that supports cash coherency between the cores and the IP peripheral blocks. The associated partner IP that is supported on these devices is wide and varied according to application, but generally is associated with logic that is more optimally hardcoded rather than programmable. So for example, security crypto accelerators for the backhaul interface or for the air interface, typically buffer management and perhaps event queuing management. And in the future, I think we'll see even higher core counts. So examples of that was the recently announced Cavium Thunder and Broadcom Vulcan designs that will support in excess of 30 cores. I think the Cavium device that more details were published last month supports 48 cores at around about 3.4 gigahertz. So I think we'll in the future, we'll continue to add more cores and interconnect capability to our roadmap to support the infrastructure networking space. You mentioned interconnect just then. Could you explain in a little bit more detail what ARM's cash coherent network IP is and how it helps our partners? Sure. So ARM CCN or Cash Coherent Network Interconnect is really fundamentally important to how we support the different types of traffic on today's networking system equipment. So control plane, data plane are fundamentally different characteristics. So control planes associated with tens of thousands of instructions per packet, whereas data plane, it's in the region of 100 to 1000 of instructions per packet. And the CCN interconnect must be able to accommodate these whilst balancing the CPU core, partner IP and memory requirements of the system. So quite conceivably, we can see supporting in excess of 64 ARM cores on a single chip in the future. And what are the advantages of using system and chips in networking and say compared to taking a large general purpose process, which might have been designed for something like a high powered server? Yes. So as I mentioned just a second ago, I think the fundamental requirements for networking is that high performance control plane. So you require, as I said, tens of thousands of instructions per packet must be combined with efficient architectures for the data plane, conversely requiring 100 of 1000 of instructions per packet. So the networking cores are required to handle high bandwidth, bursty traffic and latency sensitive user scheduling. And the SOX integrate different cores optimized for each type of task. And they also must integrate accelerator IP, which is required for these different networking applications. Networking applications. Now a number of ARM partners have announced significant ARM based initiatives in service. I'm just wondering how does that align with our partners' strategy in networking? Yes. I think it's very important just now in the advent of all the different changes in the network. And I think our work in executing on a strategy to support servers has led to us having an excellent position in supporting all the different software functionality and having a broad base of partner support for a range of different server platforms. And I think this has led to us max compatibility across a range of different silicon and software partners. And with the inflections likely in the industry over the next few years, there's a need to ensure all the server capability and networking capability can be accommodated on the same silicon platform in order to meet the possible all the different possible scenarios in network rollout. So for example, NFV, cloud, content delivery are all examples where server capability and networking strongly interact. Again, going back to my early point about ARM currently having a 5% share. Can you describe where ARM has presence in networking at the moment? Sure. So I think that typically, I mean, given where we've come from with the processor architecture we've had, lower price chips into corporate networking, enterprise networking boxes. So Ethernet switches, office enterprise routers, home routers, DSL modems, Wi Fi access points, etcetera. But I think, as I explained earlier, the processor capability that we now have in our portfolio and the increase in the number of cores and high priced chips going into, for example, macro base stations, backhaul equipment, etcetera. So I think we'll see revenues continue to build from here. And do you think that Almir's market share is likely to step up at any point? Or is it going to be steady increases? Will it be felt most in particular areas to begin with? Yes. I think that so we'll certainly see a large market share in macro base stations. So I think the public announcements are Huawei and NSN. There are others as well. I think there's 5 main vendors, and I think we're well positioned to take a good market share in cellular base station technology. And I think that will permeate out from that into backhaul into the core network. And I think with the system initiatives that I described on the call last week, I think we're well positioned to capitalize on these inflections that are likely in the industry. And you mentioned earlier that the semiconductors are adopting ARM because they want to save money by adopting ARM because they want to save money by pulling their resources into 1 single architecture. Does that logic apply to network operators as well? Can the operator save money by standing around standardizing around ARM instructions? I think so. Yes. I think that ISO capacity matters because of their overall total cost of ownership. And I think that code compiled for a particular processor architecture on a particular compiler or tool chain will then work across a range of cores from a particular ISA provider. So if you've got multiple processor architectures or micro architectures, then you need different tool suites and compilers. And then to manage 2 or more sets of software, it becomes very complex. You need to train your teams on these different architectures. So for the large OEMs, this is a big issue because they've got to multiply different code sets, they've got to have multiple seats from different software providers and engineers trained on these optimizations from multiple architectures. So I think, yes, the ISO compatibility does matter to the OEMs. And we see them we hear that message back from them as well very strongly. And why do you think they're opting for ARM over, say, MiP or PowerPC or X86? Yes. I think the range of cores, the series of interconnects that we've got all encompassed. And who do you think is driving the decision? Is it the chip vendors, which have licensed from on? Is it the OEMs that use those chips? Or is it the network operators that use the equipment? I think depending on where you view, you could answer all 3. I think for cost perspectives and what we mentioned earlier about maybe migration away from PerPC, NIPS, etcetera, onto ARM. That's obviously a concern for the silicon providers and the OEMs. I think the OEMs, they can view the initiatives that we've got ongoing information that we're exchanging with them. It makes them very comfortable with mixing and matching different functionality on the ARM core and interconnect IP. And I think from an operator perspective, the new initiatives that are being rolled out, namely content delivery, SDN, software defined networking, NFC, network functions virtualization, cloud are all factors that motivate their selection of processor architecture. They want to make sure that if they select an architecture, it's got the right performance points, it's got the right per consumption points and meets their goals longer term. Thanks, Luca. We just had a question e mailed in, which I think we should probably touch on. In the webcast presentation, you talked about data plane and control plane. Could you perhaps just recap on a bit of that and perhaps expand on exactly what data plane and control plane entails in terms of workloads and which processes are best suited to which application task? So this is really, really important. So I think that so let's start off with control plane. So control planes are a broad term that is it comprises a number of different elements. So typically, again, looking at the base station environment, setting up channels, tearing down channels, running connectivity stacks that are specified through 3 gsPP or IEEE, measuring the which bandwidth should be allocated to which subscriber, handing off cellular subscribers from 1 base station to another, making the decision on what base station should control which subscriber. These are all control plane tasks. And typically, the larger cores with high single threaded performance are allocated for control plane. If you flip down to the other side of the network requirement and look at the data plane, So typically this is involved with fast path transfers. So control plane is slow path and data plane is fast path. And really there's 2 different elements to the fast path. 1 is in handling the network data as it comes on to a particular piece of equipment. So typically you'll have 100 of or tens, 100 potentially gigabits, tens of gigabits up now in the core network up to 100 of gigabits of traffic on your network node. And typically today that's IP packets. They may reside in Ethernet frames. They may be tagged with things called MPLS. So you have to look at the packet data. You need to extract the data from that packet. You need to buffer the data into memory and you must be able to do that at line rates. You're not dropping any data. That needs lots of interactions between different packets, different accelerators. So typically, it's more suited to smaller cores that are able to access memory very fast and are able to access cache memory really quickly with hundreds of instructions per packet. There's also the latency specific requirements for user interface scheduling, for example, max scheduling, where if you've got 2,000 users connected to your base station in a specific time interval, you have to make a decision on which of these users should be transmitted. What's the priority of these users? Is it voice, data, video? So there's tremendous amounts of interaction between the different processor cores. And typically there's maybe thousands of instructions per packet. So you've got a range here of large cores, smaller cores and really it's all interconnected through the ability of, for example, the CCM, cash coherent networking interconnect to be able to hook these different requirements together. So it's a really, really important factor. And it's one of the things that ARM together with our partners who have got a lot of experience in pulling these architectures together, combined with the OEM knowledge, we can really, really provide an advantage here. You mentioned that part of the control plane work is opening channels and then tearing them back down again. I guess the networks have been designed around. So I do that we make voice calls for certain length of time. How does that control plane effort change as we move to IoT with potentially tens of billions of devices connected to network? So if we look forward to where IoT devices Internet of Things, so fridges, TVs potentially. You could have safety critical applications and connected to cars. You could have security services all connected in there. There's a wide range of very, very, very latency sensitive traffic. So as opposed to 5 gs that's also targeted towards high density cellular where you set up a channel and you stream a YouTube video for 5 minutes, which is very data plane centric. These IoT applications could be extremely control plane sensitive to where you set up a channel, you send 64 bytes, you pull the channel down. You set up a channel, you send 64 bikes, you pull that channel down. But you've got to do that in a very, very deterministic time frame. So it's very challenging to pull together the architecture that's required for these core networking nodes. So that's something that we're working on with our roadmap developments for 5 gs. Can you talk a bit about the importance of open source in networking and any initiatives that ARM is leading there? Sure. So I think that there's certainly a call for more programmability and flexibility in system on chip solutions. And this has accelerated the need for more software for open source from open source communities. The market challenge with all these different inflections ongoing in the industry just now and how we're working with the different communities and in particular through Lunaro, I think is key. So just to sum up again or summarize, Lonaro is an open source software community comprising multiple ARM partners and they're all collaborating in parallel on the development of common software functionality that will be used in both the server and networking environments. And these companies collaborating dramatically reduces time to market and reduces the cost for them to develop this functionality. And really, they're focusing on the commonly used software features that are going to be needed in the network. They still focus on their own proprietary value add and develop this themselves, with the remit of Llanaro. But Llanaro has this benefit of reduction of development costs and dramatically shortening time to market. And I think that the use of open source in networking is more and more important considering changes within the networking infrastructure hierarchy. So changes likely from things like network from spiritualization, software defined networking, content delivery, highlight the need to be able to partition different elements within different boxes, the OEMs and the network operators being able to do that, the need for more open software open source software availability. And again, I think that as an element that I'd like to explore in the follow-up webinar that's scheduled for sometime in the next quarter. Great. Okay. Well, I wouldn't steal your thunder for that one by asking lots of detailed questions about network function virtualization now. Industry. Perhaps you could tell us why the networking industry is now ready for ARM. Sure. So I think that highlighting what I mentioned on the presentation that was recorded. There are multiple reasons, but I guess the main ones are the fact that we can provide or our partners can provide a series of heterogeneous architectures, mixing large and small cores together with DSP blocks, together with their own proprietary functionality on system and chip designs allows them to target the needs of specific elements very carefully. I think that having this ARM based instruction set architecture scaling across multiple network elements and the ability for multiple ARM based chips to provide highly optimized solutions. So our partners can integrate their value add and differentiate with that value add. And I think another key reason for why ARM now is that the software environment that we've put in place and are continuing to put in place our investment in ARM Linux and open source initiatives like the one I mentioned from Monaro. And I think that the final point is in providing competition, choice and innovation for our partners to really provide a wide range of solutions and lowering ultimately lowering our networking OEM partners' total cost of ownership. Great. Well, thanks, Colin. I look forward to hearing more in part 2. Preet? Okay. Well, thank you, Colin. Thank you, Phil, and thank you, everybody, for dialing in. As you're probably aware, this was only the part 1 of 2. The second of these calls and webcast we're planning for probably for September in Verso. We look forward to having you host new one of those in