SoftBank Group Corp’s Arm Holdings reported a 1% drop in annual revenue as the chip designer disclosed what is expected to be the biggest initial public offering (IPO) of the year amid slowing smartphone sales. Arm’s listing is expected to revive a sluggish IPO market after several high-profile startups delayed listing plans last year due to market volatility. The British company has weathered the chip industry downturn better than most and is moving into still-booming fields like cloud computing.
Arm’s sales fell to $2.68 billion (Rs 2,225 crore) in the fiscal year ended March 31, mainly due to a decline in global smartphone shipments. Sales for the quarter ended June 30 fell 2.5% to $675 million (Rs 5,606 crore).
Arm said more than 50% of its royalty revenue in its most recent fiscal year came from smartphones and consumer electronics. According to Counterpoint Research, the global smartphone market is expected to fall to its lowest point in a decade this year. Despite a heavy reliance on smartphones for patent fees, Arm’s revenues fell slightly, suggesting a rise in its per-chip rates.
The company, whose chip technology powers most smartphones, including the iPhone, did not disclose how many shares it plans to sell or the valuation it is seeking. Reuters previously reported that SoftBank plans to sell about 10 percent of Arm in the IPO, seeking a valuation of $60 billion (Rs 4,991 billion) to $70 billion (Rs 582,250 crore). chip designer.
Arm had earlier planned to raise between $8 billion (Rs 6,655 crore) and $10 billion (Rs 83,180 crore) in an IPO, but after SoftBank acquired a 25 percent stake in Arm (not outright), the expected amount to be raised has been reduced. Funding will be reduced. The company is owned by the Saudi-backed Vision Fund, Reuters first reported in early August. SoftBank confirmed the deal with the Vision Fund in a Monday filing.
Second breakout for IPO
Arm was founded in 1990 as a joint venture between Acorn Computers, Apple Inc (then known as Apple Computer) and VLSI Technology. The company was listed on the London Stock Exchange and Nasdaq from 1998 until SoftBank took Arm private for $32 billion (nearly Rs 26,617 crore) in 2016.
SoftBank began preparing for an Arm IPO last year after a $40 billion (Rs 32,240 crore) sale of Arm to Nvidia Corp fell through due to opposition from U.S. and European antitrust regulators.
Arm makes money by paying upfront licensing fees for its technology and then paying royalties for each chip sold by Arm customers. The company has been expanding those royalty revenues, and according to its filing, the latest version of its technology “has the potential to give us even higher royalty opportunities per device.”
Arm’s chip designs dominate the smartphone industry, but they are also used in laptops and some Windows machines that Apple makes.
Arm’s technology has also gained a 10% market share in cloud computing, where Arm-based chips are used in networking and central processing units in servers.
One area where Arm has yet to make significant headway is the artificial intelligence (AI) market, where Nvidia is the leader, although Nvidia does offer Arm-based processors as part of one of its “superchip” products, which combine An AI chip with a traditional central processing unit.
Arm said it derived 24% of its revenue from China in its most recent fiscal year. That’s roughly in line with many other companies in the semiconductor industry, but all of Arm’s revenue comes from Arm China, a separate company that only indirectly owns 4.8%.
Export controls imposed by the U.S. and U.K. governments and a general downturn in China’s economy meant “we expect royalty revenues to continue to decline and licensing revenues from” China to decline, Arm said.
In early August, Reuters reported that SoftBank had held talks with a number of technology companies, including Amazon and Nvidia, that were considering investing in Arm’s IPO.
Arm’s listing is expected to provide a much-needed boost to the IPO market, with big names such as grocery delivery service Instacart, marketing automation company Klaviyo and German sandal maker Birkenstock expected to list in the coming weeks.
Arm said it expects to list on Nasdaq and trade under the ticker symbol “ARM.”
Barclays, Goldman Sachs, JPMorgan and Mizuho Financial Group are lead underwriters for the offering. Arm has selected a total of 28 banks for the IPO, but has not selected the traditional “left-led” banks and will distribute underwriter fees evenly among the four major banks.
© Thomson Reuters 2023
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