Money Strategy
A lot of attention is being paid to whether ARM, a British fabless company and subsidiary of SoftBank, which is led by Chairman Masayoshi Son, will be able to succeed in going public in the United States with support from major global companies such as Samsung Electronics, Apple, and Intel.
According to industry sources on Aug. 9, Japan’s Nihon Keizai Shimbun (Nikkei) reported on Aug. 8 that SoftBank submitted a preliminary application to the U.S. Securities and Exchange Commission (SEC) for ARM’s initial public offering (IPO) around April and plans to file a formal application for an IPO in August.
ARM was acquired by SoftBank and its subsidiary Vision Fund for US$32 billion in 2016. SoftBank Group owns 75 percent of the company and SoftBank Vision Fund the rest.
In particular, upon its listing, ARM plans to allocate certain stakes to Apple, Samsung Electronics, Nvidia, and Intel in order to make them mid- to long-term shareholders. Amazon expanding its cloud business is also reportedly in talks to participate in ARM’s listing.
Son’s push to list ARM in the United States comes as a string of failed investments have left his SoftBank cash-strapped. In fact, the SoftBank Vision Fund lost about 60 trillion won in 2022 alone. SoftBank had hoped to make up for it by selling ARM, but failed. Nvidia had attempted to take over ARM for US$40 billion (about 56 trillion) in September 2020, but the deal flopped in early February 2022 due to opposition from regulators in the United States, the United Kingdom, and the European Union.
However, after the collapse of the sale of ARM to Nvidia, Son, who turned to recouping his investment in ARM through an IPO, saw the acquisition of stakes by high-profile investors as a prerequisite for the success of the IPO and began meeting with key corporate officials to convince them about his plan. In particular, Son met with Samsung Electronics and SK in Seoul in October 2022 to directly request investment, and also met with Samsung Electronics Chairman Lee Jae-yong during that time.
“If Apple, Intel, and Samsung Electronics among others buy a stake in ARM, it will boost ARM’s corporate value,” said an industry insider. “The Nikkei talked about SoftBank’s wishes by reporting as if major companies would invest in ARM but the mentioned companies do not seem to be very interested in acquiring stakes in ARM.”
ARM’s revenue structure is based on royalties from the sale of semiconductor design IPs to fabs and integrated device manufacturers. Samsung Electronics, Apple, Qualcomm, Nvidia, and others utilize ARM’s IPs. ARM, which is privately held, does not disclose its detailed financial information, but in its last fiscal year, 2021, it reported revenue of US$2.7 billion (3.56 trillion won). Of that, royalty revenue was US$1.54 billion (about 1.98 trillion won).
SoftBank is planning to sell 10 to 15 percent of the ARM stake held by Vision Fund in the IPO and is currently checking investor demand to set the offering price.
But industry insiders are still waiting to see if ARM will be able to have a successful IPO. This is because because companies will not get a better deal on IP fees if they buy a stake in ARM.
Another negative factor is that ARM’s asking price is too high. When Nvidia acquired the company, it was valued at US$40 billion (52.8 trillion won) and it was recently estimated that it could be worth more than US$60 billion (about U79 trillion). Based on this, Samsung Electronics would have to pay 1.58 trillion won for a 2 percent stake in ARM.
“ARM’s corporate value has nearly doubled from when Son took it over in 2016,” said an industry insider, “While it’s an attractive offering given its 90 percent share of the technology-based processor market, it is questionable whether it is worth as much as it is currently valued at, due to antitrust issues.”
Recent bad news for ARM is that ARM’s competitors have recently teamed up to hold ARM in check. This makes ARM less attractive. As the use of semiconductors has exploded in everything from smartphones to automobiles, dependence on ARM has grown. In response, Intel, Qualcomm, Samsung Electronics and others have invested in RISC-V. RISC-V is an open standard instruction set architecture (ISA) based on established reduced instruction set computer (RISC) principles. Unlike most other ISA designs, RISC-V is provided under a royalty-free open-source license.
The most prominent example is Tenstorrent with its CEO, semiconductor design guru Jim Keller. The company is developing RISC-V-based artificial intelligence (AI) semiconductors and has recently received investments from Samsung Electronics, Hyundai Motor, and Kia. It also announced an AI semiconductor collaboration with LG Electronics.
In addition, five semiconductor companies -- Qualcomm, NXP, Bosch, Infineon, and Nordic Semiconductor -- announced on Aug. 4 that they will jointly invest in a RISC-V-based semiconductor company. The German-based RISC-V-based semiconductor company will focus on providing reference architectures that can be used across industries, rather than specific products. The company will initially focus on the automotive sector, with plans to expand into the mobile and the Internet of Things (IoT) domains.
The RISC-V open source software development project titled “RISE” was also launched in late May. RISE participants include Samsung Electronics, Intel, Nvidia, and Qualcomm. Open source has the advantage of being free and available to anyone, but it also has the disadvantage of being difficult to standardize. To overcome this, major players are getting together to standardize software.
“ARM is at odds with Qualcomm, one of its largest customers, over its licensing policy,” an industry official said. “It is necessary to develop RISC-V as a competitor to ARM, to avoid depending on ARM too much, amid observations that ARM will change its licensing policy to a closed one in the future.”
“At this point, it is doubtful that ARM is a very attractive offering that can encourage major companies like Samsung, Apple, and Intel to acquire a significant stake in the company by paying huge amounts of money,” he said. “Unless Son offers better-than-expected conditions for a successful IPO of ARM, they will not be willing to make equity investments in it.”