Arm secures Meta as first customer in chip push, challenging industry giants

In a landmark shift, Arm has secured Meta as the first major customer for its internally designed server CPUs, a move that signals its entry into direct chip sales and places it in direct competition with its biggest customers, including Qualcomm and Nvidia.

The company, known for licensing its chip designs to industry heavyweights like Apple, Nvidia, and Qualcomm, is now stepping directly into the silicon market, a move that could put it in direct competition with the very customers it once served.

This strategic shift marks one of the most significant transformations in Arm’s history, potentially destabilizing long-standing partnerships and reshaping the power dynamics within the semiconductor industry, reported Finacial Times.

Meta bets on Arm’s first server chip, raising questions for IT buyers

Arm’s first internally designed semiconductor is expected to be a server CPU aimed at the data center market, with Meta as its first major customer. This would mark a direct challenge to Intel and AMD, the long-standing leaders in server chip manufacturing. If successful, Arm’s entry into the data center CPU space could disrupt the traditional x86-based server ecosystem, which has historically been dominated by Intel.

Arm is now directly competing with one of its biggest customers, Qualcomm, for data center CPU deals. Qualcomm was in discussions with Facebook’s parent company, Meta, to supply processors based on Arm’s architecture. However, Arm has already secured at least part of the deal, marking a major shift from its role as a neutral IP supplier to an active market player, reported Reuters.

Arm’s first internally designed semiconductor is expected to be a server CPU aimed at the data center market, with Meta as its first major customer, reported Financial Times. This marks a direct challenge to Intel and AMD, the long-standing leaders in server chip manufacturing. If successful, Arm’s entry into the data center CPU space could disrupt the traditional x86-based server ecosystem, which has historically been dominated by Intel.

While discussions between Meta and Qualcomm are ongoing, Arm’s move raises concerns among enterprise customers who now face the possibility of competing with the very company they rely on for chip designs.

A spokesperson for Arm declined to comment on the matter.

Hiring from customers and entering the market

Arm has started recruiting executives from its own licensees, signaling a strategic transformation. Arm is actively hiring talent to expand beyond designing processor architecture to also selling its own silicon, with a focus on AI-powered data center chips and other applications, reported Reuters, citing sources familiar with the matter.

Arm’s strategic transformation is not just about hiring from licensees, it represents a fundamental shift in its business model. The company, which has long dominated the smartphone processor market, is now focusing on high-performance computing (HPC) and AI-driven chips for data centers. While Arm will design its own semiconductors, it will continue outsourcing production to foundries like TSMC, a move that aligns with the business models of fabless chip companies like Nvidia, the FT report added.

A shift that could reshape the industry

“Near-term mass migration away from Arm seems unlikely due to its established ecosystem and the complexity of shifting architectures,” said Rachita Rao, senior analyst at Everest Group. “However, companies like Qualcomm are already exploring alternatives such as RISC-V, and some firms have begun in-house efforts to reduce reliance on Arm. While some players might transition away, Arm remains the primary architect of these chips, with differentiation largely occurring at the SoC design level.”

“SoftBank’s potential acquisition of Oracle-backed chip designer Ampere could further accelerate Arm’s efforts in this segment,” Rao added. “The Meta deal lends credibility to Arm’s push into chip manufacturing, but while the company has financial and technical backing, it will take time to reach the level of established competitors. Even existing players are struggling to keep up with Nvidia.”

Arm’s business shift mirrors Nvidia’s model, where chip designs are developed in-house but actual manufacturing is outsourced to foundries like TSMC. This approach allows Arm to enter new markets while reducing capital expenditure on chip fabrication. However, the move could create tensions with long-time partners like Apple, Qualcomm, and Nvidia, who must now consider whether their reliance on Arm’s technology puts them in direct competition with it.

“Arm already holds a near-monopoly in certain semiconductor IP segments, and regulators closely scrutinize its licensing policies and potential acquisitions,” Rao noted. “If Arm expands further into direct chip sales, regulators may require a clear separation between its IP licensing and chip manufacturing divisions. Any perceived preference for its own products or sudden licensing fee hikes could invite antitrust investigations.”

“As AI chip development accelerates, chipset makers will likely pursue both backward and forward integration, aiming to control more of the design and development process while still relying on foundries for manufacturing,” said Faisal Kawoosa, founder and lead analyst at Techarc. “Arm’s move into chipmaking is a natural response to this trend, but it also introduces challenges. Competing with firms like Nvidia and Qualcomm requires more than just strong design expertise—it demands deep market knowledge, customer relationships, and extensive front-end integration, areas where its competitors currently have an edge.”

Arm’s business shift mirrors Nvidia’s model, where chip designs are developed in-house but actual manufacturing is outsourced to foundries like TSMC. This approach allows Arm to enter new markets while reducing capital expenditure on chip fabrication. However, the move could create tensions with long-time partners like Apple, Qualcomm, and Nvidia, who must now consider whether their reliance on Arm’s technology puts them in direct competition with it.

Potential challenge to Nvidia in AI chips

Beyond server CPUs, Arm is setting its sights on the booming AI chip market, where Nvidia is currently the dominant player. Arm is also a part of SoftBank’s Stargate initiative, a large-scale project to develop AI-focused data centers in the US in collaboration with OpenAI and Oracle.

If Arm moves aggressively into AI hardware, it could challenge Nvidia’s stronghold on AI-specific GPUs, a sector currently experiencing exponential demand due to advancements in generative AI. Arm may also be positioning itself to compete with Nvidia, a dominant force in the AI chip market.

Besides, Arm and its parent company, SoftBank, are working with Broadcom to develop a custom-built AI chip for SoftBank’s data centers. The project is estimated to be worth as much as $30 billion in revenue for Broadcom, reported Reuters citing a research note from JP Morgan analyst Harlan Sur.

The note further suggests that if Arm aggressively moves into AI hardware, it could position itself as a direct competitor to chip giants such as Nvidia and AMD. While Arm has not publicly confirmed these ambitions, its efforts to recruit top chip executives and win strategic deals suggest a clear intent to expand beyond its traditional licensing business.

For decades, Arm has been seen as a neutral provider of chip design technology, licensing its IP to major semiconductor firms without directly competing with them. That model is now changing, and the ripple effects could be significant.

If Arm continues to expand into chip sales, enterprise customers may need to rethink their reliance on its technology. Companies that once viewed Arm as a partner may now see it as a rival, potentially reshaping the semiconductor market and altering supply chain strategies across the industry.

Queries seeking comment from Qualcomm and Meta remain unanswered.