Arm Rival SiFive Expects Licensing Revenue to Surge This Year

(Bloomberg) — SiFive Inc., a money-losing chip designer that competes with Arm Holdings Plc, expects to boost its licensing revenue to $60 million this year while striking at least $180 million worth of lifetime royalty deals.

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The closely held company generated $38.2 million in revenue in 2023, according to documents reviewed by Bloomberg News. It also signed $186 million in lifetime deals. But the startup suffered a net operating loss of $113.1 million during that period, saddled by operating expenses of $148.9 million, the documents show.

Like Arm, SiFive makes most of its revenue from licensing and royalty deals. Under licensing agreements, customers pay to gain access to chip blueprints and other technology. When clients turn those designs into actual products, they pay a cut in the form of royalties.

The figures show a promising growth trajectory for SiFive, even as the startup faces an uphill fight in getting more of the tech industry to use its designs. It anticipates that a second-generation chip for artificial intelligence servers will further fuel revenue, meaning its projections could be conservative. A spokesman for the San Mateo, California-based company declined to comment.

The startup — run by former Qualcomm Inc. executive Patrick Little — offers a range of chip designs for AI, automotive and computing customers, marketing itself as an alternative to Arm. SiFive relies on a standard called RISC-V, an open-source approach to chip design that aims to make the technology cheaper and more accessible.

In pitching RISC-V chips, SiFive is up against both Arm and Intel Corp., which uses what’s known as the x86 instruction set. But Intel is also an investor in SiFive, an attempt by the semiconductor giant to hedge its bets. Qualcomm, a big user of Arm designs, has backed SiFive as well.

The company expects to make $16 million in the first quarter of 2024, including lifetime royalties and licensing revenue. It anticipates $43 million in the second quarter, $103 million in the third and $79 million in the fourth quarter.

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Adding up all the royalty contracts secured through the end of 2023 would total $233 million in future revenue, according to the documents. The company totaled $225 million last year when combining licensing revenue and new lifetime contracts. It anticipates that amount reaching $240 million to $280 million this year.

SiFive raised $175 million in 2022, valuing the startup at $2.5 billion. The company’s licensing approach can be lucrative: Its gross margins — the percentage of revenue left after deducting direct expenses — came in at 94% last year, the documents show. But hefty operating costs have weighed on the business, and it took steps last year to slim down.

In October, the chip designer cut 20% of its staff of 650 people. “The growth of the company has never been stronger and the opportunities never better,” SiFive said in a statement at the time. “We are well funded for years in the future and continue to work with the market leaders in every segment.”

The main question looming over SiFive is whether the RISC-V standard can supplant existing technologies. For now, many of the biggest companies are steering clear of it. Apple Inc. has extended its licensing agreement with Arm until the 2040s, and Intel recently abandoned an internal project to develop its own RISC-V-based architecture.

A few years ago, Intel and SiFive held acquisition talks, but those discussions ended without a deal. The startup has also discussed the prospect of eventually going public, though it doesn’t have concrete plans on timing yet.

SiFive remains a fraction of the size of Arm, which had the biggest US initial public offering last year. That company is projected to report an 19% increase in revenue to $3.18 billion during fiscal 2024, which ends in March.

–With assistance from Ian King.

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