SoftBank’s Arm is stepping into the spotlight, laying out plans for what could be the largest US initial public offering in nearly two years. This tech powerhouse is set to land on the Nasdaq’s prestigious listing floor early next month.
Rivian, the electric car innovator, previously held the limelight with a $70 billion market cap in 2016, but Arm might just eclipse that.
A valuable chip on SoftBank’s shoulder
The renowned Japanese conglomerate, SoftBank, steered by the formidable Masayoshi Son, made headlines when it procured the UK’s crown jewel, Arm, for $32 billion in 2016.
Fast forward to today, a recent internal valuation between SoftBank Group and its Vision Fund nudged Arm’s worth to an impressive $64 billion. It’s not just about numbers, though.
Arm’s strategic dependence on China, contributing to nearly a quarter of its revenue, is both an advantage and a vulnerability in this politically charged era, especially given the Biden administration’s current stance on US semiconductor endeavors in China.
Arm has intricately woven its designs into the DNA of the global smartphone market. Think of a smartphone, and Arm is there, commanding a market share that’s almost total.
The company boasts that a staggering 70% of the global populace interacts with Arm-based products. Last year, chips infused with Arm’s innovation captured 49% of a market, with its potential valued just north of $200 billion.
Chinks in the Arm-or?
Yet, not all is rosy. Despite its monopoly, Arm is making its comeback to the public trading arena amidst a decade’s most significant smartphone slump. Their revenue, touching $2.7 billion up to this March, shows a minor dip from the previous year.
And their net profit? That took a 5% tumble to land at $524 million. The intriguing part? Arm won’t pocket any proceeds from this IPO. Instead, SoftBank is set to dilute its stronghold.
To counterbalance this slump, Arm is diversifying, looking towards automotive and cloud computing arenas. They’re not just expanding; they’re amplifying the value of their intellectual property. Son is also pushing Arm’s potential in the AI domain. But challenges persist.
SoftBank has been courting tech behemoths like Amazon, Intel, and Nvidia for investment in this IPO. Remember Nvidia’s failed $66 billion attempt to acquire Arm last year? It adds another layer to the narrative.
Arm’s entanglement with China is a ticking time bomb. The intricate ownership structure, the exclusive licensing rights to giants like Alibaba and Xiaomi, and the political tension between nations make it a tightrope walk.
SoftBank’s indirect 4.8% stake in Arm China, coupled with a more significant 48% stake held by a SoftBank subsidiary, makes the waters even murkier. And let’s not forget the turbulent relationship with former Arm China chief, Allen Wu.
The filing also sheds light on Arm’s internal challenges. A glaring “material weakness” in their IT system controls stands out, but the company’s proactive stance to rectify it offers a sliver of hope.
Yet, a SoftBank insider hinted that a successful IPO, especially in these tough times, could reignite faith in Masayoshi Son’s clout in tech investment. Arm’s colossal stature and its history cushion its risks, but the market is watching.
This IPO will not just be a financial transaction; it’ll be a litmus test for the entire US IPO ecosystem after an 18-month lull.
And the who’s who of banking – Goldman Sachs, Barclays, JPMorgan Chase, and Mizuho – are leading the charge on this offering, backed by 24 other financial juggernauts.
With Arm all set to parade its IPO prospects post the Labor Day holiday in early September, CEO Rene Haas is eyeing a sweet $40 million combined cash and stock reward.
