Title: Arm Ltd Announces Upcoming IPO, Poised to Become Valuable US Company
Introduction:
Arm Ltd, a chip designer owned by SoftBank, has recently released a preliminary prospectus for its upcoming initial public offering (IPO) on Nasdaq. This move marks the largest US IPO in nearly two years and is expected to position Arm as the most valuable company to go public since November 2021. With a projected market capitalization of $64 billion, Arm’s IPO highlights the company’s strong position in the semiconductor industry. However, as the smartphone market experiences a significant decline, Arm aims to diversify its revenue streams by expanding into the automotive and cloud computing sectors, as well as focusing on the growing AI market.
Key Points:
1. Arm’s Acquisition and Valuation: SoftBank acquired Arm, a UK-based chip designer, for $32 billion in 2016. Following an internal transaction earlier this month between SoftBank Group and its Vision Fund, Arm was valued at $64 billion. The IPO will result in SoftBank selling its stake, and Arm itself will not receive any proceeds from the offering.
2. Dependence on China: Arm relies on China for nearly a quarter of its revenues. However, with the Joe Biden administration tightening restrictions on US semiconductor companies, Arm’s Chinese operations face potential challenges. Notably, a local company, not controlled by Arm or SoftBank, manages Arm’s business in China. Despite this dependency, Arm’s designs hold a near monopoly on smartphone chips, with over 99% market share.
3. Revenue and Financials: According to the prospectus, Arm reported $2.7 billion in revenue for the 12 months ending March 31, representing a 1% decline compared to the previous year. Net income also fell by 5% to $524 million. Arm’s recent slowdown prompts the company to seek new growth opportunities in the automotive and cloud computing markets while leveraging its valuable intellectual property.
4. Unique Ownership Structure in China: Arm China operates under an idiosyncratic ownership structure. Although Arm UK transferred ownership of the unit to a SoftBank entity, Chinese government records indicate that Arm UK still owns nearly half of Arm China. The Chinese government refuses to register the share transfer and wants to keep Arm directly involved in the joint venture.
5. Potential Investors and Advisors: SoftBank has engaged in discussions with potential investors such as Amazon, Intel, and Nvidia (whose bid to acquire Arm collapsed). While the prospectus does not provide detailed information on key investors, the involvement of such technology giants highlights the market’s interest in Arm’s IPO. Goldman Sachs, Barclays, JPMorgan Chase, and Mizuho, along with 24 other banks, are the main advisors on the offering.
Additional Insights:
1. Arm’s Expansion Amidst Smartphone Slump: Arm’s return to public markets coincides with a slump in the smartphone market, posing a challenge for the company. To mitigate this impact, Arm is strategically expanding into the automotive and cloud computing sectors. Additionally, the company aims to leverage its intellectual property to drive value and capitalize on the growing AI market.
2. Arm’s Market Dominance: Arm’s designs currently hold a 49% share of the total addressable market valued at over $1.2 trillion. With its chips powering approximately 70% of the world’s population, Arm has a strong foothold in the smartphone industry. This market dominance positions the company as a less risky IPO candidate, given its size and track record.
3. Potential Restoration of Confidence in SoftBank: SoftBank’s listing of Arm at a valuation exceeding $60 billion in a challenging market environment showcases the potential restoration of confidence in Masayoshi Son as a leading tech investor. The success of Arm’s IPO could provide a much-needed boost to the US IPO market after a relatively dry period.
Conclusion:
Arm’s upcoming IPO on Nasdaq is set to cement its position as the most valuable company to complete a US IPO in recent years. As a chip designer, Arm’s dominance in smartphone chips and its expansion into other sectors highlight the company’s resilience amidst a declining smartphone market. With SoftBank’s sale of its stake and Arm’s strategic focus on diversification and innovation, the IPO marks an important milestone in the semiconductor industry. Arm’s success could not only restore confidence in SoftBank but also serve as a catalyst for the US IPO market’s revitalization.
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Arm, a chip designer owned by SoftBank, has begun the countdown to the largest US initial public offering in nearly two years, unveiling a preliminary prospectus for a Nasdaq listing expected early next month.
Arm it’s on track to become the most valuable company to complete a U.S. IPO since at least November 2021, when electric-car maker Rivian went public with an initial market cap of $70 billion.
SoftBank, led by Masayoshi Son, acquired UK-based Arm for $32 billion in 2016. Monday’s filing confirmed that a internal transaction earlier this month between SoftBank Group and its Vision Fund — an investment vehicle managed by the Japanese conglomerate — it valued ARM at $64 billion.
The prospectus reveals that Arm depends on China for nearly a quarter of its revenues, at a time when the Joe Biden administration is tightening restrictions on the activities of US semiconductor companies. Arm’s business in China is run by a local company that neither it nor SoftBank controls.
Arm’s designs have a near monopoly on the chips at the heart of every smartphone, with over 99% market share. “We estimate that approximately 70% of the world’s population uses Arm-based products,” the company said in the filing, adding that chips containing its technology held a 49% share of a total addressable market worth just over $1000. 200 billion last year. .
However, Cambridge-based Arm is returning to public markets after a seven-year absence just as the smartphone market is seeing its biggest slump in a decade.
Arm reported revenue of $2.7 billion in the 12 months to March 31, down 1 percent year over year, according to the prospectus. Net income fell 5% to $524 million. Arm itself will not receive any proceeds from the IPO, which will result in SoftBank selling its stake.
The slowdown is prompting Arm to tap into new sources of growth by expanding into the automotive and cloud computing markets and increasing the value of its intellectual property. Son also wanted to highlight Arm’s role in the growing AI market.
SoftBank held talks with various customers and technology groups become investors in the IPO, including Amazon, Intel and Nvidia, the AI-focused chipmaker whose $66 billion bid to buy Arm collapsed in 2022. He did not provide further insight into potential key investors in Monday’s filing.
Among the risk factors detailed in the prospectus, Arm warned it was “particularly susceptible to economic and political risks” affecting China, the world’s largest smartphone market. Royalty revenue from that country fell last year due to a combination of slowing economic growth and “factors related to export controls and national security issues.”
The company’s relationship with China is further complicated by Arm China’s idiosyncratic ownership structure, which holds the exclusive rights to sublicense its intellectual property to Chinese clients such as Alibaba and Xiaomi.
Despite what Arm describes as a “significant dependency” on Arm China, the British group last year moved to transfer ownership of the unit to a SoftBank entity, leaving it with a 4.8% indirect ownership interest, according to the prospectus.
However, Chinese government records show that the British group still owns nearly half of Arm China. Chinese officials have refused to register the share transfer because they want to keep Arm directly involved in the Chinese joint venture, the FT previously reported.
Former Arm China boss Allen Wu spent two years resisting attempts to oust him until he was finally forced out by Shenzhen officials last year.
Elsewhere in the filing, Arm also noted that it had identified a “substantial weakness” in the controls over the computer systems used to prepare its financial statements. He said he introduced several measures to address the problem during his last financial year, but gave no assurances as to when they would be fully resolved.
A long-term investor in SoftBank said the Japanese group’s ability to list Arm at a valuation of more than $60 billion in a tough market could potentially serve to restore confidence in Son’s powers as a leading tech investor.
Arm’s large size and track record as a public company mean it’s seen as less risky than many traditional IPO candidates, but the deal is still being watched closely as a showdown for the U.S. IPO market after 18 months of drought.
Goldman Sachs, Barclays, JPMorgan Chase and Mizuho are the main advisors on the offering, along with 24 other banks.
Monday’s filing allows Arm to begin its IPO roadshow after the markets reopen after the Labor Day holiday in early September. Arm filed a confidential preliminary prospectus with the Securities and Exchange Commission earlier this year, but companies are required to make their documents public at least 15 days before a formal stock sale process begins.
Arm CEO Rene Haas is in line to receive a $20 million cash award upon completion of the IPO, as well as a $20 million stock award.
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