SoftBank, one of the world’s biggest tech companies and startup investors, believes we’ll have a trillion connected devices by 2025. And these devices, connected through the internet of things (IoT, where everyday objects have processors or sensors) will generate $11 trillion in value by that time, according to SoftBank Group chief operating officer Marcelo Claure, who spoke this week at an event held by SoftBank’s Arm chip design company, which has grown from 4,000 to 6,000 people under SoftBank’s ownership.
Arm held its annual Arm TechCon event this week in San Jose, California. The company talked about its Neoverse, which will provide a “cloud to edge” infrastructure for Arm-based devices. But there was an elephant in the room, as a cloud is hanging over Saudi Arabia, one of the biggest investors in the SoftBank Vision Fund.
Washington Post journalist Jamal Khashoggi disappeared after a visit to the Saudi consulate in Turkey at the beginning of this month, and it was later confirmed he was killed in a “fight.” Evidence is pointing toward Saudi crown prince Mohammed bin Salman, who has pledged to invest $45 billion in SoftBank’s second Vision Fund.
While the circumstances of Khashoggi’s death wasn’t the topic at hand at TechCon, it came up during a conversation between a group of journalists, Claure, and Arm CEO Simon Segers after the keynote talks. This began when a journalist asked about the incident, and Claure answered the question. Don Clark of the New York Times asked a follow-up, and then an Arm public relations person tried to shut the conversation down. Richard Waters of the Financial Times objected, saying, “We are not in Saudi Arabia. We are in the United States. This is a serious point. Open journalism is a serious part of this democracy. Do you really think we’re going to shut this down after one question? It’s just nonsense.”
The PR person relented, and in the session that took place on Wednesday, Claure acknowledged that SoftBank was “watching the developments” in the case closely.
We also talked about how SoftBank believes Arm will play a key role in bringing about the Singularity — the day a few decades in the future when artificial intelligence exceeds the collective intelligence of humanity. This is the stuff of science fiction, but Claure insisted it is grounded in today’s technological reality.
Here’s an edited transcript of our interview.
Question: Two years into the acquisition by SoftBank, I’d love to hear any specific examples of increases in staff or budgets for R&D, or particular initiatives.
Did Neoverse get investment from SoftBank, for instance?
Simon Segers: We’ve been investing broadly across Arm. Masa’s instruction to me on day one was, “Go, go, go!” A term he used frequently. We’ve invested a lot in our engineering headcount to deliver the products we’ve been talking about and will talk about this week. We’ve hired about 2,000 people into Arm over the last two years. That’s had a negative impact on our profitability for now, but what Masa is always looking to do is to invest now to create a huge return in the future. He’s not too worried about the short-term results, as long as there’s a plan to deliver great upside in the future.
Those 2,000 people in Arm, obviously some of that is in the infrastructure of the company, because we’re bigger now, but it’s largely into engineering. We’re about 80 percent technical across the company. People are working on our IOT platform, the variants of our processes for things like Neoverse, the other IP that our partners license from us, and all the technologies we think will be needed to deliver on that next generation of computing, machine learning being one of them.
So, very broad investment across the technology space. The benefit of being part of SoftBank and not being public is that we can invest in many of those technologies in parallel. Two years ago and a bit, I would have had to pick one or two things and place some bets. We can now do that in a much broader way than we would have been able to do previously.
Question: Can you point to anything you’ve done that you wouldn’t have done as a public company?
Segers: If we think of our IOT platform, we acquired a couple of companies earlier this summer. We’ve invested significantly in our headcount to deliver on the organic technologies we were developing. I’m sure that wouldn’t have gone as rapidly as it has done, had we been public.
Question: The 2,000 people, is that a net increase, or was there also a loss?
Segers: That’s the gross number. There’s a bit of attrition along the way, obviously. But we’re over 6,000 people now in Arm. I can’t remember exactly what the number was on the day of acquisition, but we’re just over 6,000 now.
The growth has been global. SoftBank committed that we would double our headcount in the U.K. over the five years after the acquisition. We’re on a path to that. But we’ve grown pretty uniformly in our main sites. We have about 1,200 people here in the U.S. We have 1,000 people in India. We’ve grown in Israel. We’re quite diversified in where the people are. We’re looking to have a significant presence where there are significant technology presences, so that we can tap into the local ecosystem and local talent.
Question: What are the challenges of collaborating with SoftBank?
Segers: Every company has their own set of objectives. Everyone’s trying to go really fast. But the opportunity is to look for ways to leverage each other’s skills and technologies, and look for ways to solve problems across the group in a more efficient way.
We recently announced, with Sprint, that they’ll be using the IOT platform we’ve been building as part of their IOT offering. That’s Sprint engineering a solution very similar to what we had. It means everyone can go faster.
Question: Can you detail how the IOT partnership with Intel works?
Segers: It’s specifically looking at the challenges of onboarding devices. As you look at IOT, it’s quite complex to get devices on a network, and it’s complex to get the data to tell you something useful. Generally we’ve been looking to address those friction points. How do you get something on the network, and once you have it on the network, how do you do things with the data? How do you capture the data in the right way?
We’ve been looking to reduce that friction and improve device security. The partnership with Intel is about how you get those devices onboarded independently of the underlying architecture of the device itself.
Question: Are you still profitable, albeit less profitable?
Question: Could you explain some of the assumptions behind the big numbers you had? A trillion units, $11 trillion in value, how do you connect that back to what’s shipping today or what growth rates you’re talking about for those numbers to happen?
Marcelo Claure: We get those numbers through a combination of third parties. We get numbers from Arm. We get numbers from all of our companies, and then we make some predictions around the amount of connected devices that there will be. It’s a gathering of many different sources of data. We run the data through Arm’s management to make sure we’re looking at the same page.
When you look at what’s happening in terms of everything being connected on a global basis, and getting a trillion devices by 2025–everything we carry or that we have is going to be connected at all levels. Therefore we feel quite comfortable that those are the numbers. Then we work backwards with Arm to make sure they’re ready as far as increasing shipments. We’ve been seeing increasing shipments over all of our business, so we feel comfortable that those are solid numbers.
When you look at $11 trillion in economic value, we’ve done a lot of research over the course of the last year in order to put together all the different use cases that will exist. When you’re able to combine high-speed networks with low latency and great coverage–just combine that with what we’re seeing today in the new chips that are already being manufactured.
The compound growth rate of Arm chips has been growing at about 16 percent the last few years. Extrapolate that forward and you get to big numbers quite quickly. A lot of the growth is coming in these very small, very low power processors which are going into microcontrollers inside IOT things. IOT is obviously a spectrum of computing, but in those end points, where a lot of that connectivity is going to happen, we’re seeing explosive growth.
Question: Was the notion of a billion sensors also part of the same 2025 prediction? I think that was Drew’s number?
Segers: Yes, that will be part of the connected things.
Question: With the pullout of GlobalFoundries and chasing Moore’s Law recently, are you at all worried about bleeding-edge capacity? Will there be enough foundry capacity for the growth you’re talking about?
Segers: Not something I spend a lot of time worrying about, I have to say. GlobalFoundries pulling out of that space, I think that’s a rational decision that they’ve made for their business, to go focus on things where they can lead and show some value and differentiation into the market. The technologies they’re focusing on are going to be important for some of the end markets we care about.
TSMC is doing a great job on the leading edge right now. If the market is sufficiently large I’m confident they’ll invest to provide the capacity to the industry. If they can’t do that alone, I’m sure that others will come in to add capacity.
Question: Can you share your opinion on what some have seen as a slowdown in the semiconductor industry?
Segers: The semi industry has had a couple of years of very strong growth. I’ve seen reports saying it’s going to slow down. There’s always a variance in the outlook for the semi industry. If I look back, the accuracy with which those forecasts have historically been made hasn’t been phenomenal. But to borrow some of Masa’s thinking, there may be ups and downs along the way, but you have to look through that. We have the opportunity to look through specific cycles and make sure we’re investing in technologies that will be critical for the long run, regardless of whether there’s some bumps along the way.
Again, I don’t spend a lot of time worrying about what the semi outlook is for the next 12 months. We care about that because we care about the finances of our partners, who we are working with to deliver this technology, but we’re taking a long-term view of where the market is going to go. I think those trends are undeniable.
Question: Are you worried at all about RISC V, the open-source chip design that seems to be gaining momentum, including at some of your licensees? What’s your competitive response to that?
Segers: I look at that and I can argue that there have been open-source processors in the past. There have been free processors in the past. There have been configurable processors in the past. None of them have anything like the industry traction we do.
At the same time, the Innovator’s Dilemma is one of the best business books that’s been written, especially in this space. We have to take the threat of somebody disrupting us from below very seriously. So, what are we doing? We’re focused on making sure that our technology investment means we have the best products, that our products are easy to access, easy to design in, easy for developers to build products around.
You can see the fruits of that at this event. We have 5,000 people registered to come to this event. That’s a lot of people, and many presentations being given by people using Arm technology. It’s an enormous amount of traction behind what we’re doing. We’ll make sure we keep investing to keep that community engrossed in what Arm is going. That’s helped by the investments we’re making in our overall platform.
Question: Does it change the licensing dynamic, your licensing discussions?
Segers: Sometimes? But at the end of the day, if you want to build a high-performance microprocessor, that takes real engineering effort. If you want to build a processor architecture and invest in an ecosystem, that takes effort. It takes resources. It takes cost. I’ve no issue with RISC V keeping us on our toes, either from a technology or a business model point of view. Our goal is to stay out front.
Question: You have investments in a lot of companies and a lot of different funds at SoftBank. I’m sure you have a short-term, mid-term, and long-term view on your investments. Five years from now, what do you want Arm to be delivering to SoftBank?
Claure: From a financial performance perspective, obviously we’ve been very clear that we’re making a necessary investment in order for Arm to continue to thrive in the future, especially in an industry where we see growth everywhere. There’s not a single company we invest in where don’t see that. We’re confident in Arm’s growth and in the future of this company. As long as there’s connectivity, as long as there’s processors and sensors, Arm is going to play a role. It’s fair to say that 100 percent of our investment, we always think about how Arm can enhance it.
Now, details can change from one day to another. There’s engineering. There’s planning. There are products our companies are building, and now Arm is invited to be a part of that. If I’m not mistaken, Arm has been the largest investment that SoftBank has ever made. When you look at the style of our group, we like to invest in order to generate rewards in the future. That’s how we see the Arm investment today. But we also see Arm as the center of the ecosystem of all of our portfolio companies, and we’re figuring out what role Arm can play there.
When you’re looking at multiple companies — when you look at autonomous cars, when you look at ride-sharing, when you look at robotics — they all have a big piece in technology of the connected world powered by Arm. Arm is a very important piece of that picture.
Question: Recently, the issue of the missing journalist [Jamal Khashoggi, now confirmed as killed in ‘fight’ at the Saudi consulate in Turkey] has caused criticism for Saudi Arabia. SoftBank has a lot of relationships with Saudi. What impact are you feeling in the future for the strategy of SoftBank?
Claure: We like most businesses in the world are looking at the situation unfolding. Based on that, we’re going to make decisions in the future. At this point in time, I think that, with most companies that have relationships with Saudi Arabia, are watching the developments. There are developments every hour, these days. We are just monitoring. And to be fair to Simon and myself, I would say that is being monitored mostly on the SoftBank side, than Simon, who runs the company that we own.
Don Clark of the New York Times: Do you have confidence in what the Saudi’s will tell you about that?
ARM PR: So Don, I’d like to interject here that we need to keep the conversation more focused on what is going on at ARM TechCon day. Like Marcelo said, it is kind of too soon for us to start saying beyond what we’ve said.
Richard Waters of the Financial Times: It is kind of the elephant in the room. We are journalists. We’re not going to stand here and talk about the weather. (laughter).
ARM PR: Understand, but it’s still premature to go into any depth there.
Waters: Sorry Don. I have a question.
ARM PR: Guys, we are not going to keep going down this road here.
Waters: One question. Are we not allowed to follow up to one question? We are not in Saudi Arabia. We are in the United States. This is a serious point. Open journalism is a serious part of this democracy. Do you really think we’re going to shut this down after one question? It’s just nonsense.
ARM PR: Go ahead.
Waters: So my question is what impact have you seen so far from the Saudi situation? Has it slowed the closing of any investments you are trying to make? Is the situation not actually acting right now but just waiting? What does that mean for your investments with your Vision Fund?
Claure: Right now is business as usual. We’ll continue to run our companies and funds as usual. SoftBank has assets under management in excess of $420 billion dollars. The SoftBank Vision Fund is an important part of our business, but it’s not all of SoftBank. We continue to operate our core businesses and it’s business as usual.
Waters: Is that part of your business currently on hold, then, while you’re waiting to see how the situation unfolds?
Claure: We don’t want to say it is on hold. What we’re saying is we’re monitoring what’s happening. We’re like journalists right now. We’re anxiously looking at what’s happening in the news like everybody else. It’s too early for us to have a judgment on it.
Waters: What about the second Vision Fund? Is that something that will be on the back burner until this gets resolved?
Claure: We’d rather not comment on when we plan to launch the second Vision Fund. I think neither Masa nor myself has set a specific date. We have conversations in the future. Obviously we have a fund that’s performing quite well, and like every other company in the asset management world, we’re looking at prospective funds that we might decide to raise in the future, but there’s no certainty. We don’t have a date. We haven’t done fundraising for now.
Waters: How do you assess political risk overall at SoftBank?
Claure: That is one question?
ARM PR: I think we’ve gone beyond the one follow-up question. So ….
Waters: Well I was going to ask about CFIUS [the Committee on Foreign Investment in the U.S.], actually. Obviously, the position in the U.S. has changed substantially in terms of investing in technology, taking a stricter look at foreign investment. How do you think that impacts you? How do you assess your position relative to that?
Claure: Based on what has happened?
Waters: The U.S. is obviously taking a stricter look about foreign investment in technology companies here. I wonder how you see the political risk in the U.S., and obviously Saudi Arabia plays into that.
Claure: We have a great relationship with the U.S. government. We’re one of the largest foreign investors in the U.S. We’ve always had an open and transparent relationship with CFIUS. That started with the Sprint era, where the Sprint/CFIUS contract is often highlighted as the way private enterprise should work with the U.S. government as far as transparency. We let them know ahead of time what we’re thinking and where we’re investing and the government is pretty straightforward with us. If anything were to change with that relationship, we’ll let you know.
Question: When Masa talked about the singularity as his 30-year goal, building AI into something better than humanity–you followed up with this comment about “a million times better.” That suggests that this isn’t just pie in the sky, but this is also something related to a lot of calculations you’re doing. How serious is that figure looming in your expectations, carrying it back to what’s possible today?
Claure: When you look at the exponential growth of memory, speed, processing power, and you compound it all together, yes, you’re talking about enormous numbers. Today we’re starting to see some of our businesses leverage the amount of data we have to make faster, more intelligent decisions. Those are the businesses we’re investing in. We’re investing in businesses that have AI platforms that give them a competitive advantage over the rest.
That is the fundamental belief behind much of our investment. We want to invest in businesses that have the ability to use AI as a competitive advantage, and that currently use platforms that allow them to do that. That’s fundamental. The more you hear Masa speak, you’ll hear that AI is the foundation of everything we do.
Question: Does that number also mean something for what you have to hit as far as targets go?
Segers: When you look at the combined computing power that’s been delivered so far–there are billions of smartphones being used today. I don’t know how many data center servers there are up in the U.S. so far, but if you multiply that by the compute power, it’s enormous. The amount of additional devices that we anticipate being deployed, you add all that compute power together, it’s phenomenal. Then, when you couple that with the impacts that come from the network connectivity, the additional memory, and the algorithm development, that combined compute power, the intelligence that’s spread across that network, that’s going to be quite extraordinary.
It isn’t driving at a target. It’s more of an output, almost, than an input. But it is the result of all the work we’re talking about here.
Question: Who do you see as the ultimate customer of Neoverse? In the same way that the Cortex-As are used by people who have smartphones. Is it going to just be cloud giants? Is it going to on-premise enterprise IT? What kind of customer will use that as you go up the road map?
Segers: “Yes” is the answer to that question. Cortex is used in lots of applications. There’s probably one that camera on the desk there. A large focus for the development of Cortex-A has been smartphones, but it gets used in lots of places.
Neoverse is looking at the enterprise side. If you think of Cortex being about end points, whether it’s a camera or a phone or a TV or an IOT device, Neoverse is about the infrastructure. Picture seeing the processor doing the error detection and correction that you need in a network or in a data center. You don’t want to point an end point device there. It’s more silicon. It’s more power. It’s complexity you don’t need.
That’s led us toward a feature difference between the way we think about the engine and the infrastructure. There are performance point differences. The way you want to scale the architecture might be different. That’s led us to thinking about this class of application in different ways. The customers might be building chips or building systems for the data center, or for the network, or for the edge of network computing resources that need to exist over time.
Question: How will people go about buying it? If I want to get hold of the Cortex-A technology I buy a laptop or a phone. How do you see people who are interested in altering the server and workload mix in the data center–how would they lay hold of this technology?
Segers: Go buy a network switch. Or you might go buy a base station. You might buy a server blade that’s sitting in a data center.
Question: So you don’t have to hire a silicon design team to access this technology?
Segers: Neoverse for us is about the processing capability. Like Cortex, it’s delivered through our semiconductor licensees, who build chips and sell to system designers. There’s a supply chain before it ends up in a physical thing that you might go buy. There’s no real difference. We’re not getting into building end product as such.
Question: Arm’s done a lot of great work, and so have a lot of other companies, in security, especially in the last few years. When you look at the weekly headlines, though, you see more news of hacks in 30 million Facebook accounts, what’s going on in the Washington nexus, and so on. It feels like tech in general is losing the security battle. What do you think about that overall situation?
Segers: It definitely is a battle. I don’t think it’s 30 million hacks. I think it’s an ur-hack times 30 million. Somebody I was talking to made the observation that with security, you’re not fighting a bunch of guys who might want to break into a bank. You’re fighting software’s capability. If you find an exploit, it can get packaged up and distributed and people can leverage the cloud to multiply that. The law of large numbers says you’ll find some way in, or find someone who falls for whatever the ploy is.
It’s a very changing landscape compared to how it was not that long ago. With that observation in mind, you have to attack the problem differently. There’s no magic answer to it right now. Fortunately there’s a lot of people thinking about that. In the security manifesto we have, the opening section is by Yossi Naar from Cybereason. They’re trying to apply AI techniques in a really interesting way to not spot the attack, necessarily, but to spot the way in which the attackers come in.
In the old days, with Morse code, people who could tell who was clicking the button based on their style. They have a similar approach there around how people go about attacks, which can tell you something about the attacker and therefore what to do about it. It’s going to require a whole new set of approaches to tackle this problem. We can’t just stop it.
Question: Where does tech rank in the social psyche, do you think? Tech is, historically, a cool thing that enables all this great stuff. But now you watch TV and you see the way tech is portrayed in light of Facebook or Google testifying before Congress and the like. Tech is beginning to have this more negative connotation as we lose the security battle in people’s minds, if not necessarily the technology front itself.
Segers: That’s a big part of our push in this area. The tech industry has to take responsibility for what gets pushed out. My stats that I showed in there, and in the survey results we did, a bunch of people say, “I’ll add security, but only if it’s not too complex and doesn’t cost much. None of my customers want to pay for security.” That’s not good enough.
There’s an awareness that’s necessary. Consumers need to demand more of the tech industry, and the industry needs to stand up and provide a solution for it. Otherwise, like I said, there will be no trust. It’s very easy to wallow in the glory of what technology can do, but if people fundamentally don’t trust it, nobody’s going to sell it. It’s almost self-correcting, if we don’t do it.
Question: You have your own AI engine work going on, but meanwhile everyone else is doing their own custom silicon — Apple, Google, Samsung. Does that pose a problem for the Arm ecosystem, since so much of the growth and new workload is machine learning stuff, and everyone’s doing that on custom silicon? Does that undermine the universality power that Arm has when it comes to software?
Segers: It depends how you look at it. We’re at the very early stages of really understanding what machine learning technologies are going to do, how they’re going to get used. The diversity of end point is huge. There isn’t going to be a solution to this.
Part of delivering this technology is about mapping code that is written at a very high level of abstraction down to efficient hardware. One of the areas we’ve invested in is a middle layer that we call Arm NN, which allows you to go from writing your neural network in TensorFlow or whatever your favorite is. When you want to run it on an actual chip, that chip might have a processor in it. It might have a GPU in it. It might have some machine learning accelerator in it. Arm NN helps you bridge that gap.
We think we’re a long way out from a world where the answer to machine learning hardware is this one fixed thing. It’s going to be varied. It’s going to be about how efficiently you can map software and run software. There’s going to be a range of implementations.
Question: A lot of your vision for the future at SoftBank has to do with sensors or cameras recognizing people’s faces. It seems like a lot of the world is not uniform or certain in their acceptance of that kind of technology. Do you see any sort of social norms impeding that vision you were talking about, security and privacy fears?
Claure: When you’re a global company, you want to look at the world from a global perspective. Other countries have adopted facial recognition as a way of transacting business. Soon we’ll see a point where you don’t have to pay with a credit card or pay with your phone, because sensors will be able to recognize your face. That can become the safest way to pay.
There are different parts of the world evolving in different ways. When you look at China, India, some of the markets in Asia-Pacific, the amount of development and adoption of facial recognition as a means of identification is enormous. That doesn’t necessarily need to happen in the U.S. In the U.S. there is facial recognition, and there will be. It may not be as widely adopted as in other parts of the world, but we see this as a trend you can’t stop. It’s just so efficient, from a security perspective.
You can have a single identity through facial recognition, that changes everything. It changes the way you’re going to check into a hotel. It changes the way you go through immigrations. It changes how you work. It’s everything. We think that as part of AI, facial recognition is a trend that can’t be stopped. It’ll continue around the world. Some countries will be early adopters and some will come later.
Question: So much of what you talk about blurs science fiction and real tech. What do you think is still science fiction?
Claure: The beauty of this is that everything we showed you is real. It’s happening. It’s happening at a much faster pace. I look at autonomous cars coming here faster than we’d predicted. The first examples on the road will be professional vehicles in the ride-sharing space because they’re going to be expensive. But it’s real. We’ll never be able to go back.
Technology is moving at such a pace that all these things–if you were to go back five years, you couldn’t imagine what Uber could be or how transportation would change. It would have been science fiction. When we built our 4G network, we never dreamed of the emergence of the app revolution. All these things–I’m privileged to sit next to Masa and have five or 10 entrepreneurs on any given day come and show us what they’re building. Those are the companies we’re investing in.
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