THE SHARE PRICE of ARM Holdings shot through the roof today after the leading technology magazine (*cough*) the Evening Standard published a story claiming that Apple is going to buy ARM for $8 billion.
The sources of this rumour apparently were some un-named people in the City along with a gripping interview a hack appears to have had with his typewriter.
There have been a few rumours about ARM lately that have also assisted in the rise in its share price. The first was that it plans to move out of its traditional mobile market and get into designing PC chips.
Apple would seem to make a logical buyer for ARM. It is cash rich and buying ARM would give it a lot of power over the mobile device market. Apple is also one of ARM's bigger customers. However there are also a lot of equally good reasons for Apple not to be interested.
Historically Apple was involved with the creation of ARM. The company was founded as a joint venture between Acorn, Apple and VLSI. The big idea was to develop the Acorn RISC Machine's chip. This RISC chip was first seen in the Acorn PC, and Archimedes and Apple did get a fair bit of mileage out of it.
However after the last attempt that Apple had at getting a tablet out, the Apple Newton tanked, and Steve Jobs found that he was short of cash. He flogged Apple's ownership stake in ARM to make a fast buck but later continued to use the outfit's chip designs for his Ipods.
There were lots of advantages in keeping ARM outside of Apple for both outfits. ARM has pushed itself as the leading alternative to Intel in the mobile market. Apple can keep ARM doing what it wants because it is one of its main customers.
For Apple to buy ARM it would have to get a return on its $8 billion. This is unlikely. Buying the company back into Apple would have to bring something that Jobs' Mob cannot do now.
There are two reasons that we can think of that Apple might want to buy ARM. One reason might be to remove ARM chips out of reach of the competition and take them into Apple's walled garden.
There are lots of licensing contracts that would prevent this in the short term, but in the long term there is little doubt that Jobs Mob eventually might be able to pull this off.
On paper this would leave mobile rivals having to find alternative chips. Fortunately by the time many of ARM's licensing arrangements come to an end, rivals will have worked out a way to fill the gap. Apple would be left with a company that does not make money from its chip design licences and is not really helping the company's bottom line.
The second reason is that Steve Jobs hates to lose. The Apple Newton was an embarrassment because Apple didn't have the tame press to hype it to the stars. While Jobs was not around for the Newton, one of first things he did was bring the project in house, only to have to scrap the whole project just when the whole portable thing was starting because he lacked the cash. Now, following the success of the Iphone, Jobs does have marketing momentum and he has had another crack at it with the Ipad. The same thing might apply to ARM.
His original idea was to have a chip factory that made stuff to match his whims. Having to flog Apple's stake in ARM was a personal loss.
Now Apple has the money, and buying ARM back might be a matter of honour even if it costs $8 billion. Now at least he would not have to admit that he was wrong to start it, or sell it.
Of course that would suggest that Jobs is an unbalanced egomaniac who can never admit that he made a mistake and can't take it on the chin. Um, no, we don't think he is that bad.
The other indication that Apple is not thinking of buying ARM is that we know about it. Apple is not a normal outfit. It is a pathologically secretive one. If Jobs had decided to buy ARM the first anyone would hear about it would be the press release announcing the offer.
There are very few companies that could keep something like that secret, but Apple is one of them. The buying of a public company is a very open affair but we are no where near anyone putting in a bid yet and, at this stage, normally we would know nothing.
So what are all these rumours? It seems likely to us that rumours of an Apple takeover of ARM, amid all the Ipad hype, might be a good way to jack up ARM Holdings' share price. A well placed rumour that is believed by some people is one of the best ways to do this. After the stock speculator has made a killing he dumps the shares and the price drops again. The best way to make that happen is to find a reporter who believes the rumour and writes about it. µ