Let’s go for the subsidiary of the Japanese group SoftBank, Arm. The British microprocessor behemoth, which powers 99% of smartphones worldwide, has officially launched its initial public offering (IPO) process in the United States, publishing its preliminary documents on Monday August 21, 2023.
The valuation is estimated between 60 and 70 billion dollars, more than double the price of acquisition in 2016 by SoftBank. The Japanese investor is considering selling about 10% of the company during the IPO, which could take place in September according to the economic press.
Riding the wave of AI
SoftBank had announced its intention to reintroduce Arm on the stock market after the failure, in early 2022, of its sale to the American Nvidia due to “significant regulatory hurdles”. The Japanese investment group intends to take advantage of the wave of generative artificial intelligence, which has been sweeping the tech world for the past few months.
This trend has strongly benefited Nvidia, which has seen its share price triple in 2023. This euphoria is starting to raise questions, however. Financial analysts are indeed wondering if the big tech companies can still dominate the market and if the generative AI blast will eventually die down. So it’s time for Arm to face the market.
“The AI boom, led by companies like Nvidia and services like ChatGPT, which is expected to drive higher demand for advanced AI-related chips and chip architectures, will benefit Arm”underlined at the beginning of August the analyst Douglas Kim in a note published on the Smartkarma platform.
A heavy addiction to smartphones
Arm, which has become a world reference, estimates that 70% of the world’s population uses products equipped with its microprocessors. These are used by more than 260 technology companies and Arm manufactures more than 30 billion chips each year, powering 99% of the world’s smartphones.
Alas, the smartphone market has been suffering for several years and 2023 could be its annus horribilis of the decade (-6% according to Counterpoint Research forecasts). This inevitably impacts the results of Arm, which saw its revenues fall by 1% year on year at the end of March to 2.7 billion dollars. Its net profit was halved in the second quarter compared to 2022, to $105 million.
Hence the importance of the artificial intelligence market. The group has also diversified into the world of PCs and data centers, and is now focusing on autonomous vehicles, the Internet of Things (IoT) and even augmented reality headsets. It will also have to reassure investors about its dependence on the Chinese market, which accounts for some 25% of its income. In order to circumvent US sanctions, Chinese companies are also investing heavily in the development of RISC-V, a chip design architecture open-source which could serve as an alternative to Arm.
Several large tech groups could enter the capital of Arm during the IPO. Are mentioned Apple, Intel, Samsung, Amazon, Alphabet, but also Nvidia, all customers of the manufacturer of microprocessors.
Sources: Les Echos, AFP, Reuters