Strategic Analysis of ARM Holdings - Essay Example

Strategic Analysis of ARM holdings Executive Summary UK based ARM Holding is one of the semiconductor companies, which have been posting impressive results in terms of market share. ARM Holding boosts of great technology (Maatouk, 2012), which has a played, a vital role in winning market share for the company. The company has developed innovative way of conducting its business through licensing manufacturing companies to use their technology. This move has made the company to command a large market share owing to the standards of its products. The design of the company operation is to limit the cost it incurs in manufacturing. To achieve this business design ARM collaborate with leading semiconductor-manufacturing companies to produce what the markets demands (McIntosh, 2011:86). Its partner companies have been able to produce smart and modern electronic devises, which consume little energy. The move made by ARM to collaborate with semiconductor companies is because of the expenses involved in designing and production electronic devices produced by these companies. Collaboration has symbiotic benefits to ARM and these semiconductor companies because ARM and the semiconductor companies spread the costs thereby reducing the overall cost they would have spent as individual companies. ARM has been able to make money through licensing semiconductor companies to use its designs (Espinoza, 2010). Since the technology design of ARM is appealing to the market, semiconductor companies, which have collaborated with ARM, have been able to make profit while marketing products of ARM. Marketing strategy of ARM has enabled it to compete favorable with other semiconductor companies. Introduction ARM Holding has been able to initiate competition in the semiconductor industry through its technological designs and strategic approaches it uses to command it business (Southon, 2011:126). Products produced by the partnering companies have made ARM to achieve a lot of profit. In analyzing strategies developed by ARM, this case would address the following. Section one of the report will analyze the business environment of ARM holding, in section two, the report will access ARM capacity to respond to environmental changes, in section three will address option that the company has at its disposal and section four would be recommendation and implementation plan. Business Environment of ARM Holding ARM holding has been able to use its business environment to gain the market share. The company enjoys political stability of UK and legal framework of the country. ARM Holding collaborates with other semiconductor manufacturing companies to market its products (ARM). This collaboration has been successful because of the existing laws, which have enabled the ARM holding to enter into such contracts (Arthur, 2011). The product of the business has been able to penetrate international market because of the political influence, which define international business. Policies influencing international trade influence market penetration strategy that a business would adapt. Friendly policies promoting international trade have enabled ARM products to penetrate various markets. Competitors influence market share that a business would command. ARM Holdings competes with other semiconductor manufacturing company’s like Intel (Tryphonides, 2012). ARM holding has decided to collaborate with other semiconductor manufacturing companies in order to win a great market share. In this collaboration, ARM Holdings provide license to semiconductor companies to use their design technology to produce electronic devices used in mobile phones, personal computers and other electronic gadgets. It is apparent the ARM technology has been able to gain large market share. Viability of ARM in the market largely depends on its innovations (Gaughan, 2010:123), which produces new technology design to create impact in the market. Demographic environment for ARM products keeps growing. This is an indication of opportunity that ARM holding has. Many consumers using ARM products keep expanding their demand in response to technological advances. ARM response to customer demand include changing technological design to suite various customer demands. The business acknowledged high cost associated with manufacturing. However, it developed collaboration strategy to spread the cost associated with manufacturing. Research indicates that other semiconductor companies have started showing interest in the manufacture of electronic devices for Smartphone. Evidently, this move has set competition, which compels ARM to device better methods of remaining viable in the market. ARM opportunities include design technology, which appeals to the market. Another opportunity that ARM has is expertise in developing technology required in the market. ARM products surface in a market with a few competitors. The company has been able to use this opportunity to produce products that are appealing to its customers. The company has realized that it is facing challenges from its competitors such as Intel Company, which has decided to introduce products in the market. Cost of manufacture is a threat to growth of ARM Holding. Research indicates that production of electronic chips requires expertise and large running costs. High costs of operation can dislodge a business from the market. ARM weakness is that it is unable to produce products, which can satisfy the ever-growing demands of its customers. Largely, company has to look for mechanism, which would help it to face these challenges. ARM Response to Environmental Changes ARM business environment keeps changing in response to environmental factors such change in technology, change in consumer demands, and changes in cost of productions, changes in other related factors influencing cost and business viability. Analysts believe that strategic response to factors influencing market share leads to business growth. It is evident that ARM holding has been able to respond to growing competition in semiconductor industry by introducing products, which creates competitive advantage against the business competitors. For instance, design a low energy consuming electronic chips intended to create a competitive advantage over the other products from similar companies (Southon, 2011:128). This innovation has made ARM costumers to increase because the strategy responded to the needs of the consumers. It is also evident that ARM responded to growing competitions in the market by introducing new technology, which would make its products preferable. Design technology, which makes Smartphone and other electronic devices to support internet services, has increased business viability of ARM. It is interesting to note that customers of semiconductor companies tend to stress on viability of technology. Consumers in this industry demand products, which have sustainable technology. Evidently, ARM has been able to counter competition by advancing its technology thereby commanding a large market share. ARM Holdings responded to threat of high cost of production by collaboration with other leading semiconductor companies in order to spread the cost. Research indicates that ARM licensed Fijtsu Company to produce electronic microchip devices (Arthur, 2011). The company made this move to respond to escalating cost of productions. Studies also indicate that this move responded to growing demands made by the company’s customers. The capacity of the company to respond to growing number of consumers was inadequate because it meant that the company had to incur costs for setting up plants. Analysts believe that merger helps in reducing structural costs, enhance market integration, reduce competition for market share, and increase investor’s ability to bargain prices in the market (ARM). It is arguable that merger is one of the strategic options that ARM adopted in order to rival its competitor Intel. Market share commanded by Fijtsu and ARM is quite large compared to the market share of Intel. In addition, the products that these two companies present to the market bear the customer demand. ARM has decided to differentiate its market as a move to respond to the growing demand of its product. Research on Smartphone products indicate that the world is quick in adapting to new technology. Since ARM has design technology that responds to the growing needs of the people meeting these demands require a differentiated market where players serve different demands of their customers (Stoukas, 2012). ARM has decided to advance its technology design by introducing products, which tap non-colonized areas such as internet provision through cell phone. Semiconductors companies had not been able to tap customers who demanded internet services through electronic devises such as cell phone (Ernst, 2005). In response to growing competition, the company decided to tap this market share through introduction of innovative products. Analysts believe that product innovation is eminent when business products are in a competitive market. Largely, product innovation enables a firm to control its grip of the market share. Growing demand of electronic chips used in manufacture of telephone products is a blessing to the company. The company has been able to develop a low energy consuming electronic device which suites many consumers (Rossman, et. al. 2012). Many business analysts believe that product innovation should respond to consumer demands. Manufacturing businesses should be able to respond to changes in customer’s preferences and tastes. Another response to business environmental changes that ARM has developed is to concentrate in technology design over manufacturing of semiconductors. This response has enhanced cost reduction and increased business viability. ARM Holding Porter’s Five Forces ARM Holdings experiences a competitive market structure hence influenced by the Porter’s Five Forces in its operations. Through its management, it seeks to develop a stiff competition to its rivals. Rivalry is the first factor where by ARM Holdings has managed to win a larger market share. This has been achieved through improved product differentiation through innovations and creative distribution channels. Second, there are threats of substitutes since related firms still strive to be effective. Though the firm is effectively fighting this, the trend has affected the price elasticity. Third is buyer power, which dictates the ability buyers have to the firm and the entire industry. The fourth factor is the supplier power, which dictates how customers get the products. Accessibility of raw material and labor has created a leading buyer-supplier relationship. Last is threats the firm has of New Entrants and Barriers to entry. Since the telecommunication industry has a competitive market structure, there is free entry and exit. However, entering this market is hard for new firms hence an advantage to ARM Holdings. ARM Holding analysis and Industry Many factors in the macro-environment affect the firm and the industry at large through management’s decision. The factors include political factors, which refer to the policies set by government like their involvement in the economy. Like any other firm in the industry, ARM Holdings is affected by political factors. Economic factors like the interests rates imposed and rates of taxing have significantly influenced the firm. The rate of economic growth and inflation rate dictate the output of the firm. Social factors affect the demand of the products from ARM Holdings. Through this factors also, workers commitment and hence output is determined. ARM Holdings advocates for technological factors since new products have been created to compete effectively in the market and remain stable during this technology era (Hitt et. al. 34). By recording high revenue, telecommunication industry is emerging the largest, providing services to a progressively global and interconnected world. The life cycle of this industry is highly influenced by technological changes. Introduction of new and unique products requires proper planning and enough capital. This stage requires proper marketing and distribution leading to the second stage of growth. Growth stage still needs enough capital and extensive research and development programs to amend products to meet customers’ needs. This is the level of high growth, a stage at which ARM Holdings is rated. At maturity, the third cycle stage, the growth starts declining. This is as a result of competition from late entrants. It is important for the firm to remain strong stressing products’ unique features. Decline is the last stage and occurs if innovation has been ignored. Sales sufferings lead to declined life cycle. ARM Holding Strategic options ARM holding has been able to record an increase in its profit margin. Research on the company progresses indicates that the company has been able to penetrate international market with its products (Vance, 2010). Strategic options of the company aim at promoting business of the company. Collaboration deals sealed by the company intended to reduce production cost. Business collaboration may have the following effects to ARM products: it might accelerate market share of ARM. This means that ARM has to develop equal capacity to meet the needs of the growing market. Business analysts believe that collaboration leads to product penetration in various markets as evident by ARM products in the market (ARM 2012). Conversely, as ARM increases its market share it has to increase its production capacity. This might mean that ARM will have to expand its plant manufacturing capacity. Technological design strategy is an option that ARM has been able to use to grip the market (BBC News. 2012). It is apparent that many semiconductor companies do not have the expertise and technology design for producing low energy consuming electronic devices. On the other hand, market demand for low energy consuming electronic devise is on the increase. ARM can use its technology ability to increase its competitiveness. Licensing of technology design to other leading semiconductor companies has enabled the business to fight its rival in the semiconductor industry (Tryphonides, 2012). Research indicates that licensed firms produce similar products under business brand name. This makes the business name to penetrate the market thereby leading to large market share. Research indicates that ARM has introduced a variety of microchips, which strategically makes a leader over Intel Company, which is its archrival. Recommendation and Implementation Research on strategic marketing plan of ARM holdings indicates that the company has adapted various options in order to makes its products viable to its customers. Evidently, technology design strategy developed by the company responds rapidly to the growing market. The future of the company lies on its technology design ability. This research recommends that ARM holding should continue innovating new technology for its products. Collaboration strategy devised by ARM has proved to be viable since ARM has been able to spread it production costs. Studies have also reveled that collaboration between ARM and other leading semiconductor companies has accelerated market share of the company (Freidman, 2011). This research recommends that the company should continue with its collaboration strategy because it gives the company opportunity spread its products in the international market. This research recommends product innovation as a measure that would promote viability of the business. The research has identified the rapid changes in technology, which has an influence on the market structure of the company. Viability of the company in the market depends on the products it presents to the consumers. Satisfaction of consumer demand necessitates product innovation. Implementing recommendation of this research is not hard because ARM has already established firms, which operate using its license. It is apparent that ARM has to implement these recommendations if it has to compete in the semiconductor industry. Bibliography America’s Intel and Britain’s ARM have long dominated different bits of the global chip market. Now each is attacking the other’s stronghold. Available from: http://www.economist.com/node/21542402?frsc=dg|b [Accessed March 27, 2012] ARM (2012). The Architecture for the Digital World. Available from: http://www.arm.com/about/company-profile/index.php [Accessed March 27, 2012]. ARM Holdings plc (ARM) - Financial and Strategic SWOT Analysis Review. InfoGrok. Available from http://www.infogrok.com/index.php/vmchk/2169-swot/arm-holdings-plc-arm-swot-profile/flypage.pbv.tpl.html [Accessed March 27, 2012] Arm Holdings profits up over 40% Available from: http://www.bbc.co.uk/news/business-16809225 [Accessed March 27, 2012] ARM. 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