What do we know about the ARM IPO?
SoftBank Group is expected to list its ARM Ltd segment at some point this year 2023.The exact timing of the IPO will be determined by market conditions.
The company has selected four investment banks to lead the listing - Goldman Sachs, JPMOrgan Chase, Barclays and Mizuho Financial Group. It's said the ARM IPO will take place in the US, and is likely to confidentially submit paperwork in April.
The US-listing will come as a disappointment to UK ministers who had continually been lobbying the company to list on the London Stock Exchange, in a bid to secure London as an appealing destination for high-value IPOs. ARM previously had a dual-listed firm in London and New York, until it was bought by SoftBank in 2016 and delisted.
In 2020, Softbank announced it would be selling ARM to US Chipmaker NVIDIA, but the $80 billion sale fell through in February 2022 after numerous governments cited competition issues. The decision to list ARM instead will likely not be as profitable as its sale to NVIDIA would have been. Especially given the turbulent time tech stocks have been having on public markets, rising interest rates and changing monetary policy.
The company is seeking an IPO because private investors in the SoftBank-led Vision Fund – who own 25% of ARM – will be able to cash in through an IPO. ARM also wants to be able to give stock options as incentives to employees.
Should the ARM IPO go ahead, it's likely to be one of the highest-profile floats in recent years and could provide a much needed boost to the IPO market.
Explore other upcoming IPOs to watch.
How to trade the ARM IPO
Once ARM has been listed, you’ll be able to trade its shares in the same way as any other stock on the market.
In the meantime, you can trade shares with FOREX.com in these easy steps:
- Open a FOREX.com account, or log in if you’re already a customer
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
Alternatively, you can practise trading shares in a risk-free demo account.
What does ARM do?
ARM is a British semiconductor chip company, whose primary business is designing processors and other chips, as well as systems and platforms. ARM doesn’t manufacture computer processors itself but sells licences to other production firms. It describes itself as the R&D department for the entire semiconductor industry.
ARM was spun out of a computing company called Acorn Computers in 1990. At the time, the company was part of a joint venture with Apple, which would make chips for the US titan’s first handheld computer. But the venture flopped, leading Apple to sell its 43% stake in ARM – the proceeds of which it used to buy NeXT – an American technology company founded by Apple’s former-CEO Steve Jobs.
Shortly afterwards, Nokia started using ARM-based solutions, and by the end of the 90s, so had the rest of the mobile-phone manufacturing industry, including Apple. Upon his return to the company, Jobs started using ARM-based chip designs as the basis for the first iPod, iPhone and iPad.
Eventually ARM was bought by SoftBank in 2016 for $24 billion – a 43% premium over ARM’s share price at the time. SoftBank had to take on more debt to finance the deal, which many questioned at the time, but its gamble was spot on as ARM chips soared in popularity.
ARM’s designs are now found in a huge range of devices, such as tablets, computers, smart TVs, smart homes, electric vehicles, drones, electronic passports, and even automatic streetlights. Its technology is found in around 95% of the world’s smartphones – including Apple, Android and Samsung – and 95% of chips designed in China.
How much is ARM worth?
The ARM IPO is expected to value the company at $40 billion, or £34 million - although the company has said it's aiming for a minimum of $50 billion. That's still significantly less than it's previous valuation in 2021, when ARM was valued at $80 billion amid the deal with NVIDIA.
The value of the sale was directly tied to NVIDIA’s stock price as SoftBank would be taking a 10% stake of the US firm. The deal’s valuation was originally set at $40 billion, but during the global chip shortage, NVIDIA’s share price shot up and so did ARM’s valuation.
Learn more about market capitalisation.
How does ARM make money?
ARM makes most of its money through the royalties it collects every time a company makes a chip using its design. And thanks to the company’s market dominance, over 160 billion chips have been made based on ARM designs as of last year.
In SoftBank’s Annual Report for 2021, it was stated that ARM’s technology royalties had grown 16.7% year-on-year.
ARM’s non-royalty revenue is taken from the licenses for processor designs to other semiconductor companies. These companies pay an up-front fee to gain access the technology – and then a subsequent royalty on every chip that uses one the designs.
Is ARM profitable?
According to the company's reports, ARM's 2021 total revenues were up 35% to $2.7 billion, due to strong growth in both royalty and non-royalty revenue. Until the company is public, it's under no other reporting obligations.
Learn how to read a company's earnings report.
What is ARM's business model?
ARM’s business model is very much based on staying ahead of the curve when it comes to technological advancements.
The company acknowledges that new applications, device categories and markets are continually emerging, which require advanced semiconductors to provide their capabilities. So, ARM actively tries to predict the products that consumers and businesses will need in 5-10 years’ time by investing in R&D. In doing so, the company hopes to ensure that it can develop technology ahead of the competition.
According to the ARM annual message for FY 2021, the company been investing to develop new processor technology to:
- Maintain its market position in areas where it is already strong, such as smartphones, consumer electronics, and embedded computing
- Increase royalty revenue per chip by increasing value where it can provide more technology or more valuable technology
- Establish market leadership in emerging technology areas including autonomous vehicles, IoT, and augmented reality headsets
- Introduce new business models to change competitive landscape, for example, by directly licensing its technology to OEMs and cloud companies
Who are ARM’s competitors?
ARMs main competitors are still the likes of IBM, Intel and AMD who also produce semiconductor chips. Although, ARM no longer has any significant competition within the smartphone chip space.
In terms of graphic processing units (GPUs), ARM faces competition from other giants like NVIDIA, Qualcomm and Intel. Although its worth pointing out that for the most part, these other manufactures have combined their proprietary GPUs with ARM-licensed designs.
Who owns ARM?
ARM is owned by Japanese conglomerate Softbank, who’s portfolio also includes 400 other companies, such as office-sharing firm WeWork, Uber-competitor Grab and used-car company Auto1.
The company has a total market cap of $76.61 billion as of March 2022, making it among the top 200 most valuable companies worldwide.
ARM’s management team
- Rene Haas – Chief Executive Officer
- Inder M. Singh – Chief Financial Officer
- Kirsty Gill – Chief People Officer
- Simon Segars – Advisor