Recently, it was reported that ARM, a British chip design company owned by Japan’s SoftBank Group, has been mulling a listing in the capital market. ARM’s parent company, SoftBank Group, recently released its last quarterly earnings report, which showed a fourth consecutive quarterly loss for SoftBank Group. After that, ARM CEO Rene Haas (Rene Haas) said in a media interview that ARM’s plan to go public is very mature and is currently being pushed forward. “We are doing everything we can to make sure the IPO is completed this year.”
ARM’s sales revenue jumped 28 percent to $746 million in the fiscal third quarter, making it a rare growth segment in SoftBank Group’s quarterly results. SoftBank Group holds a large number of shares in start-up technology companies, but the poor performance of these investees has dragged down SoftBank Group’s performance.
ARM is a world-renowned chip design company and is the most important supplier of smartphone design solutions. The company does not sell finished chips, but licenses intellectual property such as chip design solutions to cell phone chip makers like Apple and Qualcomm. ARM has signed licensing agreements with many chip makers and receives a one-time license fee income, in addition to the intellectual property draw revenue for each chip sold by chip licensing customers.
ARM’s traditional area of strength has been smartphone processor design, but under Haas’s leadership and new strategy, the company began to enter other new areas, including server processors used in data centers. This strategy is already paying off, with companies such as Amazon starting to use server processors based on ARM design solutions in their own cloud computing businesses.
With ARM and cloud computing and other areas of chip makers signed technology licensing agreements, the company’s latest quarter licensing fee revenue jumped 65% to $ 300 million. However, the company’s senior management also admitted that the reason for such a high year-on-year growth rate is because of the same time and a number of manufacturers signed a chip design solution technology licensing agreements.
Compared with the technology licensing fees, the single chip IP draw revenue is more stable. Last quarter this revenue grew 12% year-on-year to $446 million. This growth achievement did not come easily, global smartphone sales have declined, has affected the performance of Apple, Qualcomm, these ARM licensing customers.
Haas said that for the global smartphone market downturn, ARM is also difficult to be alone, but compared with the past, ARM in each smartphone processor integration of more intellectual property, pulling up revenue.
Haas said that in ARM’s new design architecture, the most advanced smartphone processors on the market integrate 10 to 12 computing cores each, so that manufacturers can also get a higher IP draw per processor sold, ARM.
Haas said ARM previously diversified its business (no longer a single cell phone processor), in addition to the core cell phone chip, in the chip to integrate more new technologies, these two changes allow ARM to more robustly respond to the global smartphone market decline.
SMBC Nikko Securities analyst Satoru Kikuchi said, “It’s important to move forward with Arm’s IPO, implement exit plans for other investments, and then go through these steps to improve financials and deliver returns to shareholders.”
In 2022, U.S. chip giant NVIDIA tried to buy Arm for $40 billion, but failed under strict regulatory scrutiny. That prompted SoftBank to reposition Arm in the public market as the Japanese company seeks to generate profits from its assets to offset losses in its venture capital business.
Waning investor interest in speculative technology companies and a severe downturn in the chip industry mean SoftBank’s attempt to push Arm to an IPO in 2023 could face more twists and turns.
Few other IPO-hungry private technology companies are eager to go public at a time when the IPO window is almost closed. After a record number of IPOs in 2021, the U.S. IPO market went into reverse mode last year, according to Ernst & Young (EY). Against a backdrop of soaring interest rates, investor interest in more speculative stocks declined, with trading volume down 45 percent and earnings down 61 percent. 2023 shows no sign of changing that trend.
Klarna’s IPO had been highly anticipated by investors until it was forced to accept a sharp round of declines, with its valuation dropping from $46 billion to $6.7 billion. Meanwhile, Stripe, which filed an IPO plan with the SEC, has been hesitant to make another move, having laid off 14 percent of its workforce late last year.
Space X, the rocket company led by Musk (Elon Musk), is another large company in talks around an initial public offering (IPO). But today, Tesla is still facing challenges within the company, and there is still no word on Space X’s plans for a public offering.
Arm’s head of investor relations Ian Thorton wrote in a letter last November that Arm’s plans for a public offering had been postponed from early 2023 due to concerns about the market. But the company is still on track for an IPO this year. “Obviously, we would like to go public as soon as possible. But given the current uncertainty in the global economy, given the state of the financial markets, that’s probably unlikely to happen before the end of March 2023.”
Another challenge for Arm to go public in 2023 lies in the current state of the chip industry: it is facing many headwinds. Chip stocks were particularly hard hit in 2022 as supply chain tightness and parts shortages continued throughout the year, with only a few signs of easing for the industry’s biggest players this year.
Industry giants have still not recovered from these effects. South Korean giant Samsung (Samsung) announced that its fourth-quarter operating profit fell nearly 70 percent due to a drop in demand for chips as consumers spent less on electronics and an oversupply of chips.
According to Gartner forecasts, global semiconductor revenue will decline by nearly 4 percent to $596 billion by 2023. Richard Gordon, vice president of Gartner’s research practice, said, “The near-term outlook for semiconductor revenue has deteriorated. The global economy and weakening consumer demand will have a negative impact on the semiconductor market in 2023.”
