U.K.-based chip designer Arm has positioned itself to go public, as per a U.S. initial public offering (IPO) filing paperwork revealed by the company on Monday.
The listing for a place on the Nasdaq stock exchange comes during a time when tech IPOs are performing at a historical low due to high market volatility that caused many high-profile firms to back off from their plans to go public.
The company backed by Japan’s SoftBank expects to unleash a breath of fresh air on the lackluster IPO market.
Arm Prepares Ipo Listing During A Turbulent Time For The Tech Industry
According to the filing, in the 2023 fiscal year which ended in March, Arm reported a net income of $524 million on $2.68 billion in revenue. This was slightly lower compared to the company’s $2.7 billion sales revenue from last year. Meanwhile, sales in the previous quarter ended in June fell 2.5% to $675 million.
The 4.6% year-on-year fall in revenue in Q2 2023 can be attributed to slowing demand for smartphones and other electronics worldwide. More than 50% of Arm’s royalty revenue for the latest fiscal year came from smartphone sales.
SoftBank also revealed that 24% of Arm’s revenue came from China, which is broadly in line with other chip manufacturers due to the high demand for smartphones and consumer electronics in the country.
But this revenue came through Arm’s Chinese subsidiary Arm China, a separate entity in which the company only has a 4.8% indirect stake.
Arm said that it expects declining royalty and licensing revenue from China for the rest of the year due to export sanctions placed by the West and the country’s struggling economy.
Arm is one of the most important chip companies in the world. Its chip design architecture is used by tech giants such as Apple, Microsoft, Samsung, Amazon, Alphabet (formerly Google), AMD, Intel, Qualcomm, and Nvidia.
The company conducts business by selling the licenses to its chip technology to customers who use them to manufacture bespoke chipsets for their smartphones, PCs, or servers. In return, Arm is paid a royalty on each device sold by its customers.
Arm says its technology was used in over 30 billion electronic devices shipped in the 2023 fiscal year and is found in 99% of all smartphones currently sold in the market, including iPhones.
The chip giant is now transitioning into cloud computing, where it has a commendable 10% market share in CPUs used for networking and central processing on web servers.
The company was founded in 1990 as a joint venture between Apple (then known as Apple Computers), Acorn Computers, and VLSI Technology with the aim of designing low-power-consuming processors for battery-powered devices.
The company went public on the London Stock Exchange and the Nasdaq from 1998 until 2016 when SoftBank took Arm private after purchasing it for $32 billion.
Softbank Plans To Sell Arm Shares By Taking The Company Public
Last year, SoftBank reached a deal with Nvidia Corp to sell the smartphone and computer chip designer for $40 billion. But the deal fell through following objections from U.S. and European antitrust regulators, who raised concerns over stifling competition in the market and national security.
This prompted the Japanese banking conglomerate to prepare to sell its stake in Arm by taking it public. Earlier this month, SoftBank held talks with Amazon and Nvidia, both of whom are interested in investing in the IPO.
Although it was not revealed how many shares the bank wants to sell, a recent report by Reuters suggests that SoftBank was planning to sell about 10% of its stake in Arm and seek a valuation of between $60 billion and $70 billion for the company.
Arm initially planned to raise between $8 billion to $10 billion from the IPO. But the chip engineer is now expected to raise less capital after SoftBank bought back the 25% stake in Arm that it did not directly own from the Saudi-backed Vision Fund.
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The Future Is AI
SoftBank is taking Arm public at a time when the market is focusing on next-generation semiconductor technology, spurred by the rise in artificial intelligence models. Nvidia is seen as a leader in the AI market, where the company offers Arm-based “super chip” processors that combine an AI chip with a traditional CPU.
Artificial Intelligence is the one area where Arm has not been able to make its presence felt. But that is all about to change.
The company made clear in the IPO filing that its CPU technology is vital for developing large-scale AI-powered systems. Arm explained its central processors are well-capable in handling AI workloads themselves or by combining with graphic or neural processors.
SoftBank is expected to list Arm’s IPO on the Nasdaq under the ticker symbol ‘ARM’ and has already assigned Barclays, Goldman Sachs, JPMorgan Chase, and Mizuho Financial Group as lead underwriters for the share offering.
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