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Arm Holdings, the British chip technology firm whose designs underlie mobile phone chips, is changing its licensing model to pursue a bigger customer base as more devices become connected to the internet.

Arm, owned by Japan's Softbank Group Corp, licenses its chip designs and technology to firms like Qualcomm Inc , Apple Inc and Samsung Electronics Co Ltd , which in turn use that technology in their respective chips for smartphones and other devices.

In the past, Arm required customers to pick a specific design and pay an upfront licensing fee that could cost several million dollars before getting access to it, later charging a per-chip royalty after chips went into production.

But final designs ready to send to a factory - called "tape-outs" in the chip business - can take years to perfect, leaving Arm customers making large upfront payments long before chips arrive.

On Tuesday, Arm announced a new program, with a lower fee, granting access to about three-quarters of its portfolio. License fees and royalties only kick in once chips are ready for manufacturing and start shipping.

Dipti Vachani, general manager of Arm's automotive and internet-of-things chip business, said the change was driven by an expanding customer base. Arm once dealt with sophisticated chip companies that knew which technologies they wanted to license.

But newer players like carmakers and industrial equipment firms now want to design their own chips as well and often need to experiment with designs before knowing which to put into production, she said.

The new program will cost them $75,000 a year to ready one design for manufacturing, or $200,000 for an unlimited number of designs, with license and royalties due only on chips that go into production.

"The reason we're doing it is we're seeing a massive transformation in the ecosystem, with a lot of new entrants and new levels of experimentation," Vachani said. She said the overall costs of the new program and the traditional model would be comparable, with the shift mostly involving when customers pay.

Some of Arm's most powerful designs, like the computing cores that power flagship smartphones, will not be available through the program, but it does give access to Arm's software tools for designing chips, which could also lure new customers, said Bob O'Donnell, head of TECHnalysis Research.

"In the past, you basically had to commit to a chip before you could get access" to those tools, he said. "Now you can experiment with it."

Copyright Reuters, 2019