On Wednesday, the chip design firm Arm set the price for its highly anticipated initial public offering. Following the offering, SoftBank, belonging to Masayoshi Son, will retain approximately 90% control of the company. Furthermore, customers of Arm, such as Apple, Google, Nvidia and Samsung, have declared their intent to purchase stock in the IPO.
Arm, the chip design firm that provides core technology for companies including Apple and Nvidia, priced its initial public offering at $51 a share, putting its fully diluted market cap -- including outstanding restricted stock units -- at over $54 billion. A press release announced that the U.K.-based company will start trading on Thursday under the symbol "ARM", bringing at least 95.5 million American depository shares to the Nasdaq, and giving SoftBank, its current owner, 90% control of its outstanding shares. This offering is at the highest end of Arm's expected price range, set between $47 and $51, and marks the biggest technology offering of the year.
The company's revenue from the fiscal year ending March 2020 totalled $2.68 billion, a drop less than 1% from the prior year, with net income dropping 22% to $524 million. Despite this, Arm is still riding the wave of enthusiasm surrounding artificial intelligence (AI) as it attempts to crack open the tech IPO market following a two-year pause. Its current valuation for a chip company is extremely rich compared to others in the market, other than Nvidia. At $54 billion, Arm carries a price-to-earnings multiple of about 104, based on its profits in the latest fiscal year; Nvidia is valued at 108, although it is expecting 170% revenue growth in the current quarter. By contrast, the Invesco PHLX Semiconductor ETF, measuring the performance of the 30 biggest US chip companies, has a price-to-earnings ratio of 25.
Arm's technology appears in 99% of mobile processors worldwide, and many of its major customers, from Apple and Google to Taiwan Semiconductor Manufacturing Company, have said they will purchase shares as part of the offering. Its architecture defines how a central processor works at the most basic level: instructions on how to do arithmetic and access computer memory. Founded in 1990 to manufacturer chips for battery-powered devices, Arm shot up in popularity as its instruction set proved both powerful and energy-efficient, a major draw compared to x86 architecture used in Intel and AMD PCs and servers. While some customers just buy the instruction set and design their own CPUs, others buy entire designs from Arm.
Arm has unveiled plans to move beyond smartphones and design more chips for data centers and AI applications. By 2025, it projects the total market for chip designs to be worth about $250 billion.
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