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Masayoshi Son’s SoftBank saw its shares rise as much as 2.45% on May 1 after the company’s semiconductor design unit Arm said it had filed for an IPO in the US, likely becoming the largest listing of the year in the country.
Arm has confidentially submitted a draft registration statement to the US Securities and Exchange Commission, which would allow it to remain SoftBank’s subsidiary. Reports indicate that the company is looking to raise between $8 bn to $10 bn from the IPO.
“SBG intends that Arm will continue to be a consolidated subsidiary of SBG following the completion of the proposed initial public offering. SBG does not expect that any such offering would have a material effect on its consolidated results or financial position,” SoftBank said in a statement.
Based on this, it is likely that the Japanese holding company is selling only a part of the Arm, with some estimates valuing the company between $30 bn to $70 bn.
What makes Arm IPO special?
The UK-based chip designing company is a key player in the rapidly growing semiconductor industry. Market participants have called semiconductors the new oil, with the stark example of the US-China chip war showing why it is an important frontier. Arm IPO is significant due to its reach with top chipmakers around the world.
The company’s Advanced RISC Machine (ARM) processors are used in smartphones, music players, wearables and other consumer electronic devices. The ARM processors are known to be cost-effective with small size, less power consumption and better battery life. In addition, the processors also power supercomputers and drone technology.
Arm’s semiconductor design is the most widely licensed and deployed in the world. The company designs the core engines that are built into the chips of big players such as Nvidia, Qualcomm, Apple and Samsung. Through this, Arm gets a small licence fee. Since its design is used in a multitude of products, the culmination of the small licence fees leads to large gains, thereby making it a productive business model.
“Arm has the biggest reach in the semiconductor business,” Kevin Krewell, Principal Analyst at TIRIAS Research had told Vox back in 2016 when SoftBank acquired Arm.
SoftBank’s plan with Arm IPO
SoftBank bought Arm for $32 bn in 2016, allowing the Japanese investment holding firm to step foot in the semiconductor industry for the first time. Later in 2020, Nvidia sought to acquire the chip designer with a bid of $40 bn. However, the deal had to be called off in 2022 as regulators in the US and Europe opposed to it.
Despite that, Nvidia CEO Jensen Huang said, “Arm is at the center of the important dynamics in computing. Though we won’t be one company, we will partner closely with Arm.”
SoftBank has high hopes for Arm’s potential as the chip company is looking to stretch its influence over IoT, self-driving vehicles, industrial automation, computer vision and augmented reality. The Japanese giant plans to take advantage of its differentiated technologies in high security and energy efficiency.
SoftBank has been looking for strategies to rebound from its heavy losses, mainly from its Vision Fund. After recording a loss of $23.1 bn in the April-June quarter in 2022, SoftBank decided to reduce its headcount at Vision Fund. To shore up cash reserves, SoftBank exited companies including Uber Technologies and Opendoor Technologies which made a total gain of $5.6 bn. Its entire stake in US-based online bank SoFi was sold by the third quarter of last year.
However, Vision Fund further led to losses for SoftBank, with a net loss of $5.9 bn in the quarter that ended December 2022. SoftBank has since sold its $7.2 bn worth of Alibaba shares last month, cuttings its stake in the Chinese e-commerce firm from almost 15% to just 3.8%. So what makes the Arm IPO special for SoftBank?
“ARM remains the largest asset for Softbank to monetize. That has been partially accomplished through asset-backed lending, but a successful public listing would boost Softbank directly through its 75% stake and provide valuation support for a barely break-even Vision Fund. Before leverage and adjusted for potential capital gains liability, ARM is arguably Softbank’s largest single asset,” analyst Kirk Boodry of Redex Research who publishes on Smartkarma, said late last year.
– reporting by Jovan Thomas
