Practically all smartphone processors are based on the technology of the chip designer Arm. The IPO is imminent. The owner can expect revenues in the billions.
The stock market environment is really not that relaxed at the moment. But that doesn’t stop the chip designer Arm from going public on the Nasdaq technology exchange tomorrow, Thursday.
The move is causing a lot of talk in the market because Arm’s technology is found in practically all smartphones. This is about the chips and therefore the core of electronic devices. Arm designs so-called chip architectures. They determine how the chip’s various components, including processors and memory, are arranged and how they work together. Apple and Samsung, among others, develop the processors for their smartphones based on these designs. The semiconductor company Qualcomm, whose chips run many Android devices, also uses it.
The Arm designs prevailed in smartphones and tablet computers against chip systems from Intel – among other things because they require less power. Chips based on Arm architectures are now also used in data centers, and Apple uses them in its Mac computers.
Arm makes its money on the one hand from licensing revenues and on the other hand from fees for every single chip produced using its technology. In the past financial year, the British company earned $524 million with sales of almost $2.7 billion.
Arm is currently fully owned by the technology group Softbank. The Japanese bought the company for $32 billion in 2016 and took it off the stock exchange. Last year, an attempt to sell Arm to the chip company Nvidia for $40 billion failed. Both competition watchdogs and Arm’s customers were against it. That’s why the IPO was decided.
China as a risk
Softbank wants to retain the majority of Arm afterwards and is therefore putting around nine percent of the shares on the stock exchange. The move is expected to bring the Japanese revenue of almost five billion dollars. If the shares go to investors at the high end of the $47 to $51 per share price range, the company would be valued at more than $54 billion overall. This Wednesday, the issuing banks are closing their books for the IPO.
According to insiders, the subscription range could be increased by then if demand develops strongly. This is, among other things, because many technology companies that are Arm customers want to invest in the chip designer with at least comparatively small amounts in order to secure further collaboration and influence. In recent months, ARM has been in talks with many companies about joining, including Amazon and Google parent Alphabet.
When it comes to risk factors, China took up a lot of space in the stock exchange prospectus, which is mandatory information for potential investors. The world’s largest smartphone market accounted for a quarter of Arm’s revenue last year. The licenses for Arm’s chip designs are sold there by the company Arm China, in which Chinese investors hold a majority of 52 percent.
Arm sees risks for the business both in this structure and in the technology dispute between Beijing and Washington. Some powerful Arm chips are already affected by US restrictions on exports to China.