Reduced instruction set computing (RISC) was developed in the 1970s as an alternative to the complex instruction sets used by Intel. The main computing companies, such as Sun and MIPS, naturally looked to increase performance, producing powerful workstations and servers. However, this resulted in higher cost and more power consumption.

In 1985, Acorn, a small British manufacturer of educational computers, needed a smaller and cheaper processor. "We wanted ten times the performance of our previous chip but at the same cost," says Robin Saxby, chairman and chief executive officer of ARM Holdings.

Acorn designed the Acorn RISC Machine (ARM) processor, the first RISC processor to be built for a budget price.

In 1990 the Acorn board recognised that they could realise the superior technology of the ARM chip if they spun it into a separate company. ARM was set up as a joint venture company with Apple and semiconductor manufacturer VLSI, to produce a processor for the Apple Newton personal digital assistant. Mr Saxby was recruited to run the new 50-man company from a headquarters based in a barn near Cambridge.

In 2000, just 10 years later, 400m devices containing ARM processors were shipped, amounting to 12 every second. This includes products for a wide range of devices, such as all Nokia mobile telephones, Psion and Compaq iPAQ personal digital assistants, Palm Computers (soon), Alcatel ADSL modems, Nintendo Gameboys, Bosch automobile braking systems, airbags, printers, and even a golf ball finder.

This remarkable growth has been achieved through licensing, rather than manufacturing. As silicon chips increased in power, semiconductor manufacturers could no longer design a microprocessor with more than 10m transistors, so it was more cost effective to licence it from ARM.

This suited ARM, as well. "If we were manufacturing and selling chips, we would be competing with all the best semiconductor companies in the world," says Mr Saxby. "If we licensed our technology, they would be partners, not enemies."

As a research and development company, ARM's current work will generate licence revenue three to five years later. At the end of 2000 it had 50 semiconductor partners, of whom only 23 have started shipping products. Its 50 software partners include Microsoft, Symbian, and Palm. As well as focusing on design, the company invests in helping its licensees to get the chips into production.

With half the company's revenues coming from mobile telephones and personal digital assistants, Mr Saxby does not believe that third-generation networks will result in traditional handsets being replaced by new types of devices. "We will still have a mobile phone market," he says. "The phone will get more features and services, but it will still be a phone."

One of ARM's licensees has shown him a combined personal organiser, games machine, digital still camera and telephone. "It is great as a demonstration," he says, "but people will actually want separate devices. Users will want things that work really well and the universal 'do everything' device doesn't quite work."