Arm gears up for the year’s biggest IPO with a valuation of 60 billion dollars
SoftBank’s subsidiary, Arm, submitted its IPO application on Monday. The upcoming public offering will be a significant indicator for the IPO market, which has been struggling to attract new listings due to the surge in interest rates that have caused investors to shy away from risky ventures recently.
Arm is a prominent player in the technology industry, with its chip designs being integrated into almost all smartphones globally, including Apple iPhones and most Android devices. The company’s upcoming IPO debut is highly anticipated and is expected to significantly impact the IPO market, which has been relatively subdued since 2022. Furthermore, SoftBank, which has a stake in Arm, is also poised to be affected by the company’s listing.
SoftBank has redirected its attention from growth-oriented investments to artificial intelligence, which is currently a hot topic in the industry, to recover from a difficult period in tech.
What is Arm?
The architecture of chips that power almost all smartphones is designed by Arm, a company headquartered in Cambridge, England. Acorn Computers, an early computing company, is the precursor of Arm. In 1990, Acorn spun off Advanced RISC Machines, a new company created in partnership with Apple and U.S. chipmaker VLSI Technology.
Arm doesn’t manufacture chips itself. Instead, the company is responsible for creating the “architectures” – or overall designs, including components and programming language instructions – that other companies use to build chips. Its primary value was designing chips with significantly lower energy consumption than the X86 chips commonly used in personal computers at the time. Arm is often viewed as a neutral party or “Switzerland” in the technology world, as its designs are utilized in nearly every smartphone processor, including those produced by Apple. Additionally, server and laptop processors are increasingly using Arm’s designs. Due to its contributions, Arm is considered the crown jewel of the U.K.’s technology sector.
During a developer conference in October 2022, Arm’s CEO, Rene Haas, emphasized the significance of partnering with the company, as their technology is present in nearly every device available. Businesses must work with Arm to remain competitive and keep up with the latest technological advancements.
According to Haas, all significant players in the industry must keep up with product cycles and invest in R&D to remain competitive, especially since ARM licenses its technology to these players. ARM’s business model involves licensing the intellectual property for these architectures to enable the building of systems around them. Although ARM has attempted to sell its processor designs in recent years, licensing remains a more profitable business than designing processors.
In 2016, SoftBank made headlines when it acquired Arm for $32 billion, marking the largest-ever purchase of a European technology company. The move aimed to gain a foothold in the then rapidly expanding Internet of things (IoT) sector, generating much hype at the time. While IoT only constituted a small portion of Arm’s business, the company has since expanded its semiconductors to encompass a range of applications, including connected cars. According to SoftBank’s earnings release for the quarter ending on Jun. 30, Arm generated 88.5 billion Japanese yen ($605.5 million) in revenue during that period.
Arm is experiencing difficulties due to the decrease in smartphone demand, which has affected all chip companies. During the second quarter, the net sales of Arm decreased by 4.6% compared to the previous year. Furthermore, the unit recorded a loss of 9.5 billion yen, a significant drop from the 29.8 billion yen profit made in the same period the previous year.
The sale to Nvidia is facing difficulties
Arm, a prominent player in the world of semiconductors, was initially intended to be sold to Nvidia by SoftBank. However, the deal faced regulatory hurdles due to competition and national security concerns. Nvidia is a well-known giant in the industry, and its GPUs are in high demand due to the growing popularity of A.I. applications. As a result, SoftBank has decided to list Arm as an independent company. It has been reported that the Japanese tech investing giant seeks to acquire the remaining 25% stake in Arm that it does not already own from the $100 billion Vision Fund.
The U.K. government has invested up to £1 billion ($1.3 billion) to boost its domestic chip industry. As such, Arm’s change of ownership to foreign hands is a contentious issue for the U.K.’s tech industry. The concern is that this undermines the country’s “tech sovereignty,” a problem throughout Europe as officials try to reduce reliance on technology from other nations, particularly the U.S. The British government had encouraged Arm to list in London, but the company chose New York instead, which disappointed the London Stock Exchange.
Examining the unstable IPO market
Arm, the technology company owned by SoftBank, is moving forward with plans for a U.S. listing despite the stock market’s recent volatility. Due to the sharp decline in technology valuations from their peak in 2021, it remains to be seen how much SoftBank will seek for Arm’s market value. However, reports suggest that the prospective value could range between $60 billion and $70 billion. In 2021, newly public companies such as Palantir and UiPath saw their shares skyrocket as investors were optimistic about their growth potential during the tech boom.
Arm’s S-1 filing has piqued the interest of investors due to its significance in the chip industry and its growing presence in the field of A.I. Arm has been positioning itself as an A.I. company, and it will be intriguing to observe how the firm intends to incorporate this technology into its future business plans.
Arm recently launched two new chipsets designed for machine learning applications. The first, Cortex-4, is a CPU that provides faster machine learning performance while consuming 40% less power than its predecessor. The second, a GPU dubbed G720, offers better performance and uses up to 22% less memory bandwidth than the previous model, per Arm’s statement. These new chipsets are expected to improve the efficiency and speed of machine learning processes significantly.
In a blog post dated May 29, Arm announced its continued dedication to developing and testing its GPUs for use in machine learning applications. The company remains committed to exploring new possibilities and pushing the boundaries of what is possible in this exciting field.
The success of A.I. applications relies heavily on high-powered chips, such as those provided by Nvidia and AMD, as they require significant computing power to function efficiently. Recently, Nvidia released its new Grace Hopper chip for generative A.I. applications, which uses Arm architecture. SoftBank is optimistic about the growth potential of A.I., which they believe will improve the prospects of their Vision Fund. The Vision Fund has had some setbacks due to poor investments in companies like WeWork, Didi Global, and Uber, which they have since divested.
During SoftBank’s earnings call in the June quarter, CFO Yoshimitsu Goto mentioned that the company had been gradually returning to investment activities, with a particular focus on A.I. investments. SoftBank’s Vision Fund reported its first investment gain in five consecutive quarters, with a total gain of 159.8 billion yen. The fund benefitted mainly from investments in the company’s subsidiaries, including Arm. However, this gain came after SoftBank’s Vision Fund recorded a record loss of 4.3 trillion yen for the fiscal year ending Mar. 31. The Japanese tech giant has been increasingly highlighting its investments in A.I., as demonstrated by its leading a $65 million investment in Tractable, a U.K. insurance technology company in July.