ARC awaits steep increase in unit royalties

While the company isn't yet counting on a share of the embedded processor market, it is hinting that its 1999 unit volumes could be substantial.

In announcing a $5.9 million second round of financing, Bob Terwilliger, president and chief executive officer, disclosed that the ARC core has been designed into a chip from an established 686 CPU vendor to address 3-D graphics. Terwilliger would not name the company but said the projected annual volume for that design win is 10 million units.

Observers identified Cyrix Corp., the subsidiary of National Semiconductor Corp., as the likely customer. Cyrix did not respond to requests for comment by post time. In the design, Terwilliger said the ARC core is running at 266-MHz in a 0.25-micron five-lay er metal process. The chip, which targets the sub-$1,000 PC market, has been shipping since October 1998.

The ARC core has also been used to replace a two-chip 80186 processor and DSP combination in a portable telephone. Again Terwilliger would not name the customer. Although working ICs are not due until May, the forecasted annual volume for that chip is 6 million units.

Other design wins that Terwilliger could discuss included Sierra Imaging Inc.'s Raptor II digital camera ASIC with a projected annual volume of 1.2 million units, and Blazenet's router for which it has designed two 300-k gate ASICs. Each ASIC includes two ARC cores. The annual volume tipped for these designs is 100,000 units.

"We didn't collect any royalty revenue in 1998 but we do expect royalty checks next quarter," Terwilliger said.

If ARC's X86 design win hits its projected volume in 1999, it would jump start the company as a significant force in the 32-bit embedded microprocessor market where MIPS Techno logies Inc. and ARM Ltd. each shipped about 50 million units in 1998, according to MicroDesign Resources (Sunnyvale, Calif.).

Although projected volumes are notoriously unreliable, ARC has a total of 30 licensees and 47 design wins spread across the telecom, consumer electronics and disk-drive sectors, making a wipe out for ARC unlikely. Terwilliger said ARC intends to start addressing the automotive electronics market over the next 12 to 18 months.

Terwilliger said he expects ARC to gain another 30 licensees and achieve 100 design wins in 1999.

Prior to its recent second round of financing, ARC Cores Ltd. was sustained by Argonaut Software Ltd., a games software company from which it emerged in October 1998. Its first round of venture capital brought in $6 million.

In the second round, which just closed, Nomura International plc has acquired a 17.5 percent stake in ARC and first-round investor Apax has put up additional money. Other investors in ARC include NewMedia Investors and Koei, who together with Apax and Nomura hold about 40 percent of ARC. Private investors, including founders of the company, hold the balance of the equity.

ARC will use the new funding to increase staff in R&D, engineering and sales and marketing. The company also plans to open an office in Silicon Valley.

"We've already seen that the combination of our unique product — a user-customizable microprocessor — and the business model we have applied is finding broad acceptance among the people we have shown it to," Terwilliger said. "We know many more companies want to have access to our approach. As we define our plans to build the company from a well-built foundation, the new injection of funds by Nomura and Apax will enable us to further expand to create a first class support, technical, marketing and executive structure, so that we can address the wider marker demand.

"The most significant thing we have to do is raise the profile of the company in the marketplace," he said.

Terwilliger said an initial public offering of stock in the company could take place as early as 2000. "According to our plans we could go for an IPO next year on NASDAQ and in London," he said.