Arm Holdings, the chip architecture company owned by SoftBank Group, is set to raise approximately $4.7 billion in its initial public offering, which valued the firm at over $54.5 billion.
According to Reuters, the IPO was oversubscribed by six times. Consequently, the company is poised to make a significant impact in the IPO market, with the expectation that its success could encourage other companies to follow suit. However, Masayoshi Son, the CEO of SoftBank, reportedly deemed the $51 per share price for the 95.5 million shares offered for sale on Thursday to be a prudent choice.
SoftBank had initially hoped for a higher valuation, especially since it had acquired the remaining 25% stake in Arm last month at a valuation of $64 billion.
Arm, based in Cambridge, United Kingdom, opted to go public in the United States, sparking interest in the largest IPO in the country in the past two years. The company boasts a dominant 99% market share in mobile phones and has expanded into markets such as processors for PCs and servers. Arm’s devices are known for their energy efficiency, owing to the company’s architectural roots in RISC computing, which prioritizes energy efficiency, while Intel’s rival architecture leans more towards performance.
Despite its strengths, Arm has faced challenges due to the sluggish global market, resulting in total sales of $2.68 billion in the 12 months ending March 31, compared to $2.7 billion in the preceding year. Arm has attempted to counter this by aggressively entering the automotive chip market and exploring other opportunities.
This underscores the critical role of semiconductor chips in various industries.
Chips serve as the cornerstone of the modern electronics sector, appearing as thumbnail-sized slices of silicon imbued with billions of tiny components known as transistors upon processing. These transistors are intricately arranged in circuits more complex than a global street map. In the contemporary realm, a typical semiconductor processor boasts more transistors than 16 times the global population.
In contrast, Intel’s initial microprocessor from 1971 featured a modest 2,300 transistors, while today’s cutting-edge Arm-based Apple Watch boasts a staggering 5.9 billion transistors. This remarkable growth is the result of Moore’s Law, a forecast articulated by Gordon Moore, Intel’s former CEO, in 1965, which posited that the number of transistors on a chip would double every few years.
Thanks to such efficiency enhancements, our electronic devices undergo consistent improvement every couple of years, gaining swiftness, cost-effectiveness, and reduced size. Although Moore’s Law has decelerated somewhat, progress continues unabated. Apple’s latest M2 Ultra processor for Macs, for instance, now features a remarkable 134 billion transistors.
In 2022, the industry reached a staggering $574 billion valuation, even though a chip shortage wreaked havoc on numerous sectors, exacerbating the disruptions caused by pandemic-induced demand fluctuations. This chip scarcity in 2022 idled Ford’s factories for many weeks and hindered the production of game consoles, such as the Xbox Series X/S and PlayStation 5, causing considerable harm to the global economy.
Recognizing the strategic significance of the chip industry, Congress approved the CHIPS and Science Act in 2022, earmarking $280 billion in fresh funding to bolster domestic research and semiconductor manufacturing in the United States. Arm is among the companies responsible for designing the architectural framework for processors, the very brains of electronic devices.
Intel and Advanced Micro Devices are competitors in the realm of x86 architecture, which is predominantly utilized in PCs, servers, and gaming consoles.
MIPS also stands as a rival, while Arm faces competition from an emerging technology, RISC-V, positioned as an open-source alternative devoid of royalty fees. RISC-V was conceived by a group of academics who were dismayed by Arm’s fees, even for research purposes.
Jack Kang, the Senior Vice President at SiFive, a company specializing in RISC-V chip design, extended congratulations to Arm for its IPO, viewing it as a significant stride for the semiconductor industry as a whole.
In his statement, Kang emphasized, “This IPO has increased public awareness regarding the pivotal role of computing architectures, particularly the instruction set architecture (ISA), and the necessity for top-notch, high-performance processor IP to propel our industry forward.”
Kang underscored the importance of competition in fostering a robust semiconductor industry, with newfound recognition of the vast market opportunities. He also expressed the belief that there is ample space for all players in these markets, emphasizing the demand for rapid innovation and customization, both recurring themes in their discussions with customers. Kang further revealed that SiFive’s founders developed RISC-V in response to the limited customization options associated with closed, proprietary architectures.
Arm by the numbers
Arm boasts a global workforce comprising 5,963 individuals hailing from over 85 diverse nations. Approximately 80% of these dedicated professionals are engaged in the realms of research, design, and technological innovation. The company’s accomplished engineers committed an impressive 10 million hours to the development of foundational software and tools tailored for chips equipped with Armv8 processors. In addition, Arm invested a staggering 30 million hours in crafting essential software and tools for Armv9 processors.
Projections for 2023 indicate a substantial total addressable market of $200 billion in chip value for Arm, with the potential to escalate to $250 billion by 2025. Beyond the realm of smartphones, Arm fervently pursues opportunities in AI, automotive technology, computer infrastructure, the Internet of Things (IoT), and chips integrated into a plethora of appliances and devices.
Arm proudly acknowledges a robust network of over 1,000 ecosystem partners—comprising licensees and other supporters—who leverage Arm’s architectural blueprints to fabricate chips. This symbiotic relationship resembles Arm designing the framework for an automobile, with chip design and manufacturing firms subsequently creating unique car models based on this foundational structure, complete with an engine and four wheels.
However, Arm must remain vigilant with regard to geopolitical considerations. Tensions between the United States and China pose potential challenges, as both nations vigorously strive to safeguard their respective chip supply chains. Notably, China contributed 24.5% of Arm’s revenue in the previous fiscal year.
Following its initial public offering (IPO), Japan-based SoftBank will continue to maintain ownership of more than 90% of Arm. Despite a previous attempt by Nvidia to acquire Arm for a substantial sum exceeding $40 billion, regulatory impediments thwarted the deal. In an effort to consolidate shareholder support, Arm enlisted a formidable roster of clients as cornerstone investors in its IPO, including industry titans such as Apple, Nvidia, Alphabet, Advanced Micro Devices, Intel, and Samsung Electronics.