SoftBank’s Arm Files for IPO, Anticipated To Be 2023’s Biggest

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The triumph of Arm’s IPO would deliver substantial gains for SoftBank’s founder, Masayoshi Son.

Arm Holdings Ltd., owned by SoftBank Group Corp., has taken a significant stride towards what is anticipated to be the largest initial public offering (IPO) in the United States this year. The company, renowned for its design of phone chips, is venturing into the realm of artificial intelligence computing.

In a regulatory filing that has been long-awaited, Arm disclosed that the IPO is being spearheaded by prominent financial institutions including Barclays Plc, Goldman Sachs Group Inc., JPMorgan Chase & Co., and Mizuho Financial Group Inc. Notably absent from this list is Morgan Stanley, a detail that caught attention.

The triumph of Arm’s IPO would deliver substantial gains for SoftBank’s founder, Masayoshi Son. This would be a significant recovery following the $30 billion loss incurred by the Vision Fund, attributed to the events of the previous year. The success of Arm’s IPO could also serve as a catalyst for other companies, either motivating them to advance their IPO plans or prompting them to delay, including enterprises such as Instacart Inc., Klaviyo, and Birkenstock.

Arm is set to initiate its roadshow during the initial week of September, followed by the pricing of the IPO in the subsequent week. While the specific terms of the share sale were not revealed in the filing, market speculations estimate a valuation range of $60 – $70 billion. The company, headquartered in Cambridge, UK, has engaged in discussions with its major clients to explore their potential backing of the IPO.

Although Arm had initially aimed to raise $8 billion to $10 billion through the IPO, this target could be revised downwards due to SoftBank’s decision to retain a larger stake in the company post the acquisition of Vision Fund’s share. This transaction had valued Arm at more than $64 billion, as per the filing.

Despite this, the IPO has the potential to invigorate the subdued IPO market, providing it with a substantial boost after almost two years. If successful, this listing would become the largest in the US since Rivian Automotive Inc.’s $13.7 billion offering in October 2021. The IPO could potentially come close to, or even surpass, the largest-ever IPOs in the tech industry: Alibaba Group Holding Ltd.’s $25 billion offering in 2014 and Meta Platforms Inc.’s (formerly known as Facebook Inc.) $16 billion debut in 2012.

The target valuation for SoftBank’s Arm is indicative of the confidence in its prospects within the AI chip market. This aligns with the current industry trend toward artificial intelligence chips and generative AI. Notably, Nvidia Corp., a leading chipmaker, has achieved a staggering valuation of $1.2 trillion due to its engagement in this sector.

“A strong performance from Arm will not only be a major windfall for SoftBank but also reinforce its AI strategy by showing the market hype around AI hasn’t waned,” said Kyle Stanford, an analyst at PitchBook.

While Arm’s technology is instrumental in almost every smartphone, it may not be well-known among consumers. The company specializes in providing the blueprints necessary for designing microprocessors and licenses technology known as instruction sets, which dictate how software programs interact with these chips. Arm’s technology stands out due to its power efficiency, making it a ubiquitous choice for smartphones, where battery life is of utmost importance.

In the past year, Rene Haas assumed the role of Arm’s CEO, and his focus has extended beyond the smartphone domain, which has encountered stagnation in recent years. Haas has set his sights on advanced computing, particularly chips for data centers and AI applications.

Chips designed for these applications tend to be among the most lucrative and costly in the industry. Amazon.com Inc. has embraced Arm-based chips for its Amazon Web Services due to their efficiency in terms of energy consumption and economics. These chips are utilized by 40,000 AWS customers.

After its entry into trading, SoftBank will remain the majority shareholder of Arm. The Vision Fund, under the banner of SoftBank in Tokyo, has acquired the significant majority of the Vision Fund’s 25% stake in Arm for $16.1 billion. The filing cautioned that this transaction might not provide an accurate reflection of Arm’s share price post the IPO.

The filing also confirmed that Arm experienced a slight decline of approximately 1% in its revenue during the last fiscal year. The company’s sales reached $2.68 billion for the year ending March 31, according to the filing.

The wider chip industry continues to grapple with a sales downturn, compounded by excess inventory. The smartphone market, in particular, has been severely affected. Qualcomm Inc., one of Arm’s major customers, provided a disappointing forecast for the most recent quarter, leading to a decline in its stock value. Even Apple Inc.’s esteemed iPhone has witnessed a slowdown in demand.

Arm’s business could also be influenced by tensions with China. The company acknowledged export restrictions from the US and the UK as potential risks, as these restrictions could hinder the sale of its Neoverse processor in China.

As it prepares for trading on the Nasdaq Global Select Market under the symbol ARM, Arm intends to rename itself “Arm Holdings Plc.” The filing confirmed that the four top banks involved in the IPO will function as joint book-running managers of the offering. In an unusual departure from the norm, these four institutions will share the fees equally.

Describing itself as an “engineering-first company,” Arm emphasized its commitment to research, design, and technical innovation. With over 4,753 employees – around 80% of its global workforce – dedicated to these aspects, the company holds approximately 6,800 issued patents and has nearly 2,700 patent applications awaiting review on a global scale.

During the past fiscal year, Arm-based chips were adopted by more than 260 companies including industry giants such as Amazon, Alphabet Inc., Qualcomm, and Advanced Micro Devices Inc. The company maintains long-standing relationships with its top 10 customers, measured by royalty revenue, extending over two decades on average.

As the tech industry witnesses a surge in interest in AI, companies are increasingly seeking suitable chips to facilitate complex software operations. Arm underscores that each processor it designs is optimized for accelerating AI and machine learning technologies. The company’s processors already incorporate these capabilities, and Arm has initiated efforts to further enhance its performance.

In pursuit of this goal, SoftBank’s Arm is collaborating with Alphabet, Cruise (an autonomous driving company), Mercedes-Benz, Meta, and Nvidia to deploy Arm technology capable of running AI-based software.

Established in 1990 as a joint venture between Acorn Computers, Apple, and VLSI technology, Arm was publicly listed on the London Stock Exchange and Nasdaq from 1998 to 2016. In 2016, SoftBank acquired Arm for $32 billion.

SoftBank’s previous attempts to sell Arm to Nvidia in a $40 billion deal encountered regulatory challenges and opposition from Arm’s customers, leading Nvidia to abandon the deal. Subsequently, SoftBank devised a plan for the IPO.