Apple, Samsung, Alphabet, Amazon and Microsoft could be among big tech firms that gobble-up shares when chip designer Arm lists on the Nasdaq in September.
Arm, a Cambridge-based company iconic chip designer, is being sold by its current owner, Japanese investment giant Softbank, in an IPO roughly valued around US$64bn. If that value is achieved, the IPO would be the largest in the US this year.
As a preliminary step, Softbank has paid US$16bn to its Vision Fund for the 25 percent of Arm it did not own. The transaction gives it 100 percent ownership of Arm ahead of filing for the IPO. The US$64bn figure for the IPO is an extrapolation of the Vision Fund amount, although analysts question whether Arm is worth that much. Softbank acquired Arm in 2016 for US$32bn.
There are benefits in Softbank floating Arm. It will give the Japanese investment firm capital to buy start-ups developing artificial intelligence system, a market it is keen to expand into. The New York Times reports SoftBank’s chief executive, Masayoshi Son, saying that the company “was ready to shift to ‘offense’ in the field of artificial intelligence”. According to the report, Softbank posted a US$3.3bn loss in the first quarter of this year, so the funds will be welcomed.
Arm’s revenue too has been in decline, with a one percent drop reported in the year ending March attributed to a slowing in smartphone shipments. Arm also needs new markets to expand its revenue base.
FILE PHOTO: Signage for SoftBank Group Corp. in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg
An unanswered question is what will the IPO mean for US tech firms that have used Arm’s services to design their chips.
On its website, Arm says 99 percent of today’s premium smartphones use Arm CPUs. Apple recently gained a lucrative market advantage in the laptop market by powering MacBooks with powerful yet energy efficient M-series Arm-based processors.
Amazon use Arm processors for its Amazon Web Services, while Samsung’s Exynos system-on-chip found in its high end smartphones are based on Arm architecture. Arm says more than 95 percent of smart TVs are based on its Cortex family of processors.
Reuters reported in June that companies including Apple, Samsung and Amazon were already in talks with Arm to acquire a slice of the company. Last week Japan’s Nikkei newspaper said Apple and Samsung would be investing in Arm. Another report added Nvidia to the list. Intel, Alphabet, Microsoft and Taiwanese chip maker TSMC are also reported to be interested.
MacDailyNews, which covers the IPO from an Apple perspective, said investment could be driven by a fear of Arm being taken over by a competitor. “While an IPO investment would not come with a seat on Arm’s board or ability to dictate strategy, it could strengthen ties with each participating company and make it harder for a competitor to acquire Arm later,” it reports.
Apple has achieved market success selling MacBooks with its M-series, Arm based processors.
“[One] of Arm’s major customers in talks to invest in the IPO is Apple. It was part of a consortium that founded Arm in 1990, and has been using its technology for chips that power its iPhones and Mac computers,” MacDailyNews reports. “Its close relationship with Arm has helped it design chips that curbed its reliance on Intel as a supplier.”
There is no likelihood of any US tech firm dominating Arm’s ownership in the short term if Softbank retains majority ownership of Arm as reports suggest, and with Arm’s clients reportedly limited to a 10 percent holding. Nevertheless paranoia could fuel a tug-of-war for share holdings, with companies fearing things could change down the track, for example if Softbank relinquished some of its remaining share.
Despite its saturation of the smartphone market, there is potential to further increase Arm’s reach and revenue in the automotive, smart home appliance and industrial equipment industries where Arm already is active. Investors would be looking to these newer markets for increased returns.
