SoftBank’s Arm Targets $60 Billion Value in September IPO

[Daniel Nenni]

• - Chip design firm may raise as much as $10 billion in debut
• - Nvidia, Intel are in discussions to be anchor investors

SoftBank Group Corp.’s semiconductor unit Arm Ltd. is targeting an initial public offering at a valuation of between $60 billion and $70 billion as soon as September, a sign of bullish interest in artificial-intelligence chips, according to people familiar with the matter.

The roadshow is scheduled to start the first week of September with pricing for the IPO the following week, said one of the people, asking not to be named because the talks are private. The latest target for Arm’s valuation underscores a shift in market mood in favor of technologies linked to generative AI and chips. Earlier this year, bankers were pitching a range of valuations for the chip designer from $30 billion to $70 billion, Bloomberg News has reported.

SoftBank, led by Masayoshi Son, and Arm Chief Executive Officer Rene Haas long considered the bottom of that range too low. Arm executives may still be gunning for a valuation of as high as $80 billion, but the odds of achieving such a target are uncertain, one of the people said.

Arm has “had a hugely important but behind-the-scenes and not-very-well-understood role for a very long time,” said Bob O’Donnell, president of TECHnalysis Research. “There’s this raised awareness now of what Arm does and the role that it plays.”

The chip company is looking to raise as much as $10 billion in the IPO, Bloomberg News has reported. At the top end, Arm’s debut should be the largest from the tech industry since Alibaba Group Holding Ltd. in 2014 and Meta Platforms Inc. (then Facebook Inc.) in 2012. It lands during a dry stretch for IPOs, given global economic uncertainty and the war in Ukraine.

Rene Haas, chief executive officer of Arm. Photographer: David Paul Morris/Bloomberg

SoftBank and Arm declined to comment. SoftBank shares fell 3.7%, as the benchmark Nikkei index slid 2.3%.

Arm made a confidential filing for a US listing in April. A handful of big industry names, including Nvidia Corp. and Intel Corp., have been engaged in preliminary talks to become anchor investors in the IPO, which could be the year’s biggest market debut.

Goldman Sachs Group Inc., JPMorgan Chase & Co., Barclays Plc and Mizuho Financial Group Inc. were named as IPO banks in the filing, Bloomberg News has reported.

SoftBank Envisions One of Tech History's Largest IPOs​

While the Cambridge, UK-based company’s technology is used in almost every smartphone on the planet, its place in the industry has long been obscure. Arm sells the blueprints needed to design microprocessors, and licenses technology known as instruction sets that dictate how software programs communicate with those chips. The power efficiency of Arm’s technology helped make it ubiquitous on phones, where battery life is critical.

Haas, who took over as CEO last year, is now working to expand beyond the smartphone market, which has stagnated in recent years. He’s targeting more advanced computing, particularly the chips for data centers for cloud computing and artificial intelligence applications.

Processors for that market are among the most expensive — and profitable — in the industry. Amazon.com Inc. has adopted Arm-based chips for its Amazon Web Services because it says they are more efficient both in terms of energy and economics. They are used by 40,000 AWS customers.

Estimates for Arm’s value have fluctuated wildly in tandem with chip stocks since SoftBank acquired the company for $32 billion in 2016, de-listing it from the London Stock Exchange. SoftBank founder Son has regularly talked up the potential for Arm’s future growth and dominance in chip IP. In February last year, Son said he wants Arm’s debut to be “the biggest” in the history of the semiconductor industry.

A successful Arm IPO would mark a rare victory for SoftBank, which struggled after an ill-fated foray into startup investing. The company’s Vision Fund arm lost 6.9 trillion yen ($48 billion) in the last two fiscal years as the value of its holdings tumbled.

SoftBank’s Arm Targets $60 Billion-Plus Value for September IPO

SoftBank Group Corp.’s semiconductor unit Arm Ltd. is targeting an initial public offering at a valuation of between $60 billion and $70 billion as soon as September, a sign of bullish interest in artificial-intelligence chips, according to people familiar with the matter.

www.bloomberg.com

 

[nghanayem]

Seems really high for a company with only ~1B USD in revenue a year, but that hasn't stopped investors before. Hopefully ARM going public does not increase the already too high frequency of shotgun to foot moments.

 

[Daniel Nenni]

Seems really high for a company with only ~1B USD in revenue a year, but that hasn't stopped investors before. Hopefully ARM going public does not increase the already too high frequency of shotgun to foot moments.

I'm not sure what was worse: Arm being public and having to deal with Wall Street or Arm being acquired by Softbank?

I do think IPO is a good move since big Arm customers are competitors and want a say in what Arm does. Apple, QCOM, Samsung, Nvidia, Ampere, etc.... Arm really does have leverage and an IPO is one way to get some cash from it, absolutely.

 

[ta152h]

I'm not sure what was worse: Arm being public and having to deal with Wall Street or Arm being acquired by Softbank?

I do think IPO is a good move since big Arm customers are competitors and want a say in what Arm does. Apple, QCOM, Samsung, Nvidia, Ampere, etc.... Arm really does have leverage and an IPO is one way to get some cash from it, absolutely.

I agree with you that ARM is best as an independent company, for so many reasons.

But, like most successful companies, it's just not priced right, it appears. It's why I wouldn't touch ASML, NVDA, TSM, etc... They are good companies, but everyone already knows about it, and the time to buy was earlier. I'm still big on Intel, because even with their upswing, they have so much potential growth, and the world still seems largely negative on them with the stock price below $35. I also have a lot of IBM I bought at around $115, because they are a cash cow with great dividends, and they are also priced very low. I had HPE as well, but most of them got picked up on a July $17 call, but if they dip again, I'll grab them.

ARM, by comparison, seems very expensive to me.

 

[Daniel Nenni]

ARM, by comparison, seems very expensive to me.

Not compared to Nvidia's buyout attempt?

"September 13, 2020 NVIDIA will pay to SoftBank a total of $21.5 billion in NVIDIA common stock and $12 billion in cash"

That stock would be worth 3X+ now?

 

[ta152h]

Not compared to Nvidia's buyout attempt?

"September 13, 2020 NVIDIA will pay to SoftBank a total of $21.5 billion in NVIDIA common stock and $12 billion in cash"

That stock would be worth 3X+ now?

The flaw in that logic is that one could reasonably expect NVIDIA to go up 3x. In fact, it was considered to be worth 33.5 billion, and not even that. Companies routinely over pay when do a purchase like that, but even allowing for that, and inflation, it's still not coming in at $40 billion.

For a company with that little (relatively speaking) revenue, that's a big fish to fry. And how will they get explosive growth to validate it? They already have a commanding lead in the market, it's just their model doesn't really allow for explosive growth like a company that sells chips. And RISC-V could be a threat, and seems to be gaining mass all the time.

I'd have to ask myself is this company worth over 40% of Intel, while having less than 2% of their revenue? And having no obvious path to explosive growth? I mean, you might be right, but it's just difficult for me to see it no matter how I look at it.

 

[count]

ARM taking share in server and PC markets, so there is a carrot there. But that likely won't lead to explosive growth.

I owned ARM from 2009-2010 to the time it was bought out by Softback. I bought when it was around $2-3b market cap and it was a nice ~10 bagger in that time. Softbank overpaid. Since then, there have been some missteps, which has created an opening for RISC-V. Some of the tailwinds ARM had in 2009 aren't really as strong anymore (rapidly growing smartphone market + more sophisticated chips with more cores that generate higher royalties).

Probably wouldn't buy ARM today at $60b valuation today. It's still a great company but it's not the no brainer investment it was in 2009 when it was $2b company growing 50%+ per year at a sub 30 P/E ratio with a near monopoly in smartphone chips.

That said, nothing in semiconductors looks paticularly attractive right now. You are betting either on a turnaround (Intel) or AI growth (NVidia, AMD). Turnarounds are hard and more often than not unsuccessful, and it's hard to value what the future of AI looks like and what it'll mean to NVidia/AMD. If I am looking for easier investments I'm looking at other sectors entirely.

 

[Daniel Nenni]

The flaw in that logic is that one could reasonably expect NVIDIA to go up 3x. In fact, it was considered to be worth 33.5 billion, and not even that. Companies routinely over pay when do a purchase like that, but even allowing for that, and inflation, it's still not coming in at $40 billion.

For a company with that little (relatively speaking) revenue, that's a big fish to fry. And how will they get explosive growth to validate it? They already have a commanding lead in the market, it's just their model doesn't really allow for explosive growth like a company that sells chips. And RISC-V could be a threat, and seems to be gaining mass all the time.

I'd have to ask myself is this company worth over 40% of Intel, while having less than 2% of their revenue? And having no obvious path to explosive growth? I mean, you might be right, but it's just difficult for me to see it no matter how I look at it.

The difference is perceived value versus actual value. What I'm saying is that it is possible that big Arm customers will jockey for stock position which could blow things up a bit. I'm not a stock person at all so buy high - sell low. When the big buyers pull out of Arm the average folk will be left with the write-off, that is how I see it.