Japanese telco giant SoftBank has filed for chip designer Arm's long-awaited initial public offering (IPO) on the Nasdaq.
The filing does not reveal a price, but Arm is expected to be valued at $64 billion - which would make it the most valuable company to have a US IPO since late 2021, after a year lacking in large deals due to rocketing interest rates.
SoftBank acquired Arm back in 2016 for $32bn, and two years ago tried to sell the business to Nvidia for $40bn (at one point, with Nvidia's share price increasing during negotiations, the deal was worth $66bn). But that deal fell apart under regulatory pressure.
Rather than selling its own processors, Arm licenses its Instruction Set Architecture (ISA) to others - including Nvidia, Apple, Microsoft, Google, Qualcomm, and virtually every major tech vendor that develops semiconductors. This has helped the chip designs become the most widely used ISA in the world by a comfortable margin, with the company claiming 250 billion chips sold as of the end of last year.
In particular, the company dominates the mobile market, with 99 percent of smartphone chips Arm-based.
But a slowdown in smartphone sales caused Arm’s net sales to fall 4.6 percent year-on-year in the second quarter, the IPO listing reveals.
Companies like Ampere and Amazon Web Services have also begun to push Arm server chips. A report earlier this month by Bernstein Research said that nearly 10 percent of the world's servers contain Arm processors, with more than 50 percent of all Arm server CPUs deployed in Amazon Web Services data centers.
"We expect our market share of cloud compute to grow significantly faster than the overall cloud compute market," Arm concurred in its IPO filing. "Our market share in the cloud compute market has grown from 7.2 percent as of December 31, 2020 to 10.1 percent as of December 31, 2022."
With the neutrality of Arm critical to the success of its ecosystem, its largest customers have signaled that they will all take a stake in the business. Apple, Samsung Electronics, Nvidia, Intel, Qualcomm, Amazon, and Alphabet are all reportedly looking to invest at IPO.
However, prospective investors will likely take note of the company's uneasy relationship with its own Chinese division, which accounts for a quarter of its sales but is run independently. "The fact that Arm China operates independently of us exposes us to significant risks," the listing said, adding: "Arm China’s payments due to us are determined based on the financial information that Arm China provides to us... In the past, we have received late payments from Arm China and have had to expend company resources to obtain payments from Arm China."
Also notable is the fact that Arm's revenue is highly dependent on only a few customers - with its top five clients (one of which is Arm China) accounting for 57 percent of revenue.
"As a result of this customer concentration, we are particularly susceptible to adverse developments affecting our key customers and their respective businesses, including industry downturns, decreased demand for their products, increased competition, changes in trade protection and other government policies, financial hardship and changes in their business model, purchasing behavior and strategic priorities, among other factors, many of which are beyond our control," Arm said.
Qualcomm is one of those major customers, accounting for 11 percent of sales as of March. Both Arm and Qualcomm are currently suing each other over the latter's acquisition Nuvia (which appears to be developing server chips). "We can provide no assurances regarding the outcome of the litigation or how the litigation will affect our relationship with Qualcomm, which is currently a major customer of ours," the listing said.