Arm IPO Set to be One of the Largest Tech Listings in Recent Years
Semiconductor designer Arm is preparing for an initial public offering (IPO) that could value the British firm at as much as $50 billion. The Arm IPO would be one of the largest tech listings in years and underscore the growing importance of the chip industry.
Arm was acquired by Japanese conglomerate SoftBank in 2016 for $32 billion. SoftBank is now looking to cash in on the substantial growth and increased valuation of Arm in the years since. SoftBank is reportedly targeting a listing for Arm on either the Nasdaq or London stock exchanges by early 2023.
Arm's Rise to Prominence
Founded in 1990 in Cambridge, England, Arm designs architectures and instruction set technologies that are used in chips powering billions of devices worldwide. Its ARM processor cores and designs are widely licensed by hundreds of companies, including major chipmakers like Qualcomm, MediaTek, Samsung, and Huawei.
Arm processors are found in 95% of the world's smartphones due to their power efficiency. They are also increasingly being used for applications beyond mobile, including automotive, IoT, networking, and data centers. Arm's technology underpins the vast majority of chips used in today's electronic devices.
The growing importance of Arm's technology has driven substantial increases in licensing revenue in recent years. Licensing revenue grew by 22% year-over-year to $1.6 billion in 2021. Arm also generates revenue from royalty payments on the shipment of chips incorporating its IP.
Arm's neutral role in the industry has allowed it to work with competitors across different markets. This unique business model has helped propel Arm to become a crucial player in the global semiconductor landscape. The company now employs over 6,500 people worldwide.
SoftBank's Tenure and Future Plans
SoftBank acquired Arm with the goal of accelerating its expansion beyond mobile into new growth areas like AI, IoT, and cloud computing. Under SoftBank's ownership, Arm has significantly expanded its footprint through acquisitions and new initiatives.
However, SoftBank's stake in Arm is now estimated to be worth around $60 billion based on the company's surging valuation in recent years. An IPO would allow SoftBank to cash in on its investment while reinvesting capital from the sale proceeds.
SoftBank is reportedly considering a blockbuster $40 billion to $50 billion valuation for Arm when it goes public. The company could raise $10 billion to $20 billion from the IPO. SoftBank would retain a stake of around 40% in Arm following the listing.
Arm's management team has stated the IPO proceeds will be used to fund organic growth initiatives and pursue "bolt-on" acquisitions. This will help Arm expand its technology portfolio in key domains like automotive, AI, and the cloud. The company aims to double its revenue to $6 billion by 2023 through these efforts.
Challenges on the Road to IPO
While Arm is set to have one of the largest tech IPOs, the listing also faces challenges that will need to be navigated carefully:
- Geopolitical tensions: Arm's neutral role could be complicated by rising geopolitical issues between countries like the U.S. and China that rely heavily on its technology.
- Licensing model: Maintaining Arm's collaborative approach will be crucial as it operates under public market pressures for growth.
- Valuation concerns: A $50 billion valuation would require justifying lofty expectations, especially if macro conditions weaken.
- Governance changes: Arm will need to transition to public company governance and disclose more financial details.
- Talent retention: An IPO could create employee liquidity but also increase competition for Arm's engineering talent.
If handled well, the Arm IPO has the potential to be a landmark event that reshapes the semiconductor industry. It will be a major test of SoftBank's dealmaking abilities and a litmus test for Arm's unique business model in the public markets. Executed smoothly, the IPO would mark both a new chapter for Arm as well as SoftBank's successful exit from a transformational investment.