It is predicted that Arm, a company owned by SoftBank, will submit an application for its IPO on Monday as per reports. The British-based organization plays a major role in the electronics sphere, having designed the architecture for chips that are utilized in almost all smartphones. The listing of Arm will be highly meaningful for the market, yet SoftBank will be especially impacted by the move. As such, Arm's successful debut could be a major boon for the company, whose stock has taken a huge hit in the last year.
SoftBank-owned Arm is anticipated to launch its initial public offering on Monday, according to reports. This listing will be a crucial benchmark for the IPO market, which has faced a lack of appeal for taking risks due to increasing interest rates during the last year or so.Arm, a leading player in the technology space, has its chips in nearly all smartphones including Apple iPhones and most Android devices. Its debut will be of great importance for an IPO market that has been quiet since 2022, while it also carries major implications for SoftBank.The latter has been looking to shift its emphasis to artificial intelligence, the current hit of tech, as it endeavors to revive itself from a harsh tech market by lessening its growth-oriented investments. Therefore, a positive debut from Arm could be a huge help for the company, whose stock performance has deteriorated in the past year.
Based in Cambridge, England, Arm is the designer behind the architecture in the chips integrated in 99% of all smartphones. This has its roots in the early computing firm Acorn Computers, which in 1990 launched a joint venture named Advanced RISC Machines alongside Apple and U.S. chipmaker VLSI Technology. Rather than developing chips itself, Arm's specialization lies in creating "architectures" – comprehensive designs with features and instructions programmed by other producers for chip production. At the time of its introduction, Arm's novelty was its low energy consumption compared to the X86 chips widely employed in PCs. Its 'neutral' features make it a go-to choice for virtually all processors in smartphones and, increasingly, desktops and laptops. As the U.K.'s highly-regarded tech sector leader, Arm's Chief Executive Officer Rene Haas commented in October 2022 that, with its technologies so widespread, “companies can't afford” not to work with them.
Given the fact that they license their technology to the major industry players, no one can really afford to not produce a product, scale back on R&D, or skip a product cycle, said Haas at the time. ARM specializes in licensing their intellectual property so that its customers can construct systems around it. In recent years, the company has been attempting to sell its own designs for processors, a more profitable business than simply licensing their underlying technology.SoftBank decided to purchase ARM for $32 billion in 2016, which was the greatest acquisition of a European technology company to date. At the time, SoftBank claimed it bought the company to gain access to the burgeoning IoT sector. IoT is only a small sector of their business, but it was highly anticipated at the time.Not limited to smart home or wearable devices, ARM has also been stretching its semiconductors to connected car uses. For the quarter ending June 30, SoftBank reported revenue of 88.5 billion Japanese yen ($605.5 million).Unfortunately, the company is dealing with headwinds from a suppressed demand for products such as smartphones, which has affected other chip firms too. ARM's net sales experienced a 4.6% annual decline in the second quarter.The unit also changed over to a 9.5 billion yen loss, when it had made a profit of 29.8 billion yen in the same period a year before.
SoftBank originally attempted to offload Arm to chip titan Nvidia, yet the agreement was met by obstruction from regulators, who expressed anxieties over rivalry and national security. Nvidia has flourished in the semiconductor industry, and is currently reaping the rewards of the artificial intelligence wave, as demand for its GPUs rises.Since then, SoftBank has decided to have Arm list as an independent enterprise. It is rumoured that the Japanese tech investing behemoth is setting out to purchase the remaining 25% stake in Arm that its Vision Fund of $100 billion does not entirely possess.
The U.K. has been investing up to £1 billion ($1.3 billion) in order to strengthen its chip industry, with Arm being seen as a strategically critical part of the effort. This change of ownership to foreign hands has been a contentious issue for the British tech sector, since it may challenge the country's "tech sovereignty." This is an issue familiar to many European countries, as they attempt to reduce reliance on technology from the U.S. and other nations. The U.K. government had engaged in strong campaigning for Arm to list in London, but unfortunately it chose New York for its IPO, proving to be a setback for the London Stock Exchange.
Despite unstable markets in the U.S., SoftBank has continued to move forward with a listing of Arm. At the peak of the 2021 tech bubble, shares of new publicly traded companies like Palantir and UiPath skyrocketed in response to their high growth prospects. Consequently, Arm filed to list its shares in the U.S. and reports have estimated the proposed market value to be between $60 billion and $70 billion.The company has a big part in AI and is positioning itself as such. Investors will be eager to see the S-1 filing and how the technology can be beneficial to business in the long term.In May, Arm released two new chipsets designed for machine learning applications. The brand-new Cortex-4 CPU was able to deliver faster ML performance while using 40% less power, and the G720 GPU was able to provide better performance while consuming 22% less memory bandwidth. They declared they plan to create more GPUs for ML use.High performance chips from the likes of Nvidia and AMD are essential to efficiently execute AI operations. Recently, Nvidia created the Grace Hopper chip for generative AI, and it also implements Arm architecture.The market for tech has dropped sharply, yet SoftBank is confident in the growth of AI that it can produce to continue the success of its Vision Fund which has had a few losses from investments such as WeWork, Didi Global and Uber.
CFO Yoshimitsu Goto of SoftBank stated during the firm's June quarter earnings call that they have been "gradually and cautiously resuming investing activity," with a focus on AI projects. SoftBank noted that their Vision Fund achieved a gain of 159.8 billion yen, in contrast to the prior five quarters. The fund's gains largely came from SoftBank's own subsidiaries, such as Arm. This was after the Vision Fund had reported a colossal loss of 4.3 trillion yen for the fiscal year ending Mar. 31. The tech behemoth has started to underscore their investments into AI recently. Last month, SoftBank led in a $65 million investment into Tractable, a UK insurance technology company. - Kif Leswing of CNBC contributed to this article.
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