How much do you know about ARM IPO?
SoftBank Group is expected to list its ARM Ltd on the Nasdaq in the second half of this
year 2023 (expected between late August and September). The specific timing of the IPO
will be determined based on market conditions.
The company has selected four investment banks to lead the listing - Goldman Sachs,
JPMorgan, Barclays and Nomura Financial Group.
The US listing will disappoint UK ministers who have been lobbying for the company to list
on the London Stock Exchange to ensure that London remains an attractive destination
for high-value initial public offerings. ARM was previously listed in London and New York
until it was acquired and delisted by SoftBank in 2016.
In 2020, SoftBank announced the sale of ARM to US chipmaker NVIDIA, but the $80 billion
sale was declared unsuccessful in February 2022 due to competition concerns raised by
several governments. The company is now seeking an IPO as private investors in
SoftBank-led Vision Fund (which owns 25% of ARM) will be able to profit from it. ARM also
hopes to offer employee stock options as incentives.
If the ARM IPO goes ahead successfully, it could become one of the most talked-about
IPOs in recent years and could provide a much-needed boost to the IPO market.
What does ARM do?
ARM is a British semiconductor chip company, whose primary business is designing
processors and other chips, as well as systems and platforms. ARM doesn’t manufacture
computer processors itself but sells licences to other production firms. It describes itself as
the R&D department for the entire semiconductor industry.
ARM was spun out of a computing company called Acorn Computers in 1990. At the time,
the company was part of a joint venture with Apple, which would make chips for the US
titan’s first handheld computer. But the venture flopped, leading Apple to sell its 43%
stake in ARM – the proceeds of which it used to buy NeXT – an American technology
company founded by Apple’s former-CEO Steve Jobs.
Shortly afterwards, Nokia started using ARM-based solutions, and by the end of the 90s,
so had the rest of the mobile-phone manufacturing industry, including Apple. Upon his
return to the company, Jobs started using ARM-based chip designs as the basis for the
first iPod, iPhone and iPad.
Eventually ARM was bought by SoftBank in 2016 for $24 billion – a 43% premium over
ARM’s share price at the time. SoftBank had to take on more debt to finance the deal,
which many questioned at the time, but its gamble was spot on as ARM chips soared in
popularity.
ARM’s designs are now found in a huge range of devices, such as tablets, computers,
smart TVs, smart homes, electric vehicles, drones, electronic passports, and even
automatic streetlights. Its technology is found in around 95% of the world’s smartphones
– including Apple, Android and Samsung – and 95% of chips designed in China.
What is ARM worth?
ARM's IPO is expected to value the company at $30-60 billion, but is still significantly
lower than its previous valuation in 2021, when ARM was valued at $80 billion in a deal
with Nvidia. With the AI industry exploding in 2023 and Nvidia's share price soaring during
the global chip shortage, ARM is expected to go public with a market cap of more than
$100 billion.
ARM is in the midst of a $10 billion financing round and is predicted to be valued at
$30-60 billion (3x-6x) prior to the IPO, while the post-IPO market cap is expected to
exceed $100 billion (10x).
How does ARM make money?
Most of ARM's revenue comes from royalty fees charged whenever a company uses its
designs to manufacture chips.
ARM's non-royalty revenue comes from licensing its processor designs to other
semiconductor companies. These companies pay upfront fees to obtain the technology
and then pay subsequent usage fees for each chip that uses the design.
Due to the company's dominant market position, as of last year, over 160 billion chips
based on ARM designs have been produced. ARM's technology royalty revenue increased
by 16.7% year-on-year.
What is ARM's business model?
ARM’s business model is very much based on staying ahead of the curve when it comes to
technological advancements.
The company acknowledges that new applications, device categories and markets are
continually emerging, which require advanced semiconductors to provide their
capabilities. So, ARM actively tries to predict the products that consumers and businesses
will need in 5-10 years’ time by investing in R&D. In doing so, the company hopes to
ensure that it can develop technology ahead of the competition.
ARM been investing to develop new processor technology:
Maintain its market position in areas where it is already strong, such as smartphones,
consumer electronics, and embedded computing
Increase royalty revenue per chip by increasing value where it can provide more
technology or more valuable technology
Establish market leadership in emerging technology areas including autonomous vehicles,
IoT, and augmented reality headsets
Introduce new business models to change competitive landscape, for example, by directly
licensing its technology to OEMs and cloud companies
Who are ARM's competitors?
ARM's main competitors continue to be companies such as IBM, Intel and AMD that also
produce semiconductor chips. Nevertheless, ARM no longer has any significant
competition in the smartphone chip space.
In terms of graphics processing units (GPUs), ARM faces competition from other giants
such as NVIDIA, Qualcomm and Intel. Although it is worth pointing out that in most cases,
these other manufacturers have combined their proprietary GPUs with ARM-licensed
designs.
If you have any further questions about the IPO, please leave a message and ask me or
Jennifer.
