In a long-anticipated move, Arm Holdings Plc, a prominent chip designer, successfully completed its initial public offering (IPO) in the United States on Wednesday, achieving a valuation of $54.5 billion. This development comes seven years after its former owner, SoftBank Group Corp, took the company private for $32 billion.
A Step Back
The IPO, though impressive, signifies a step back from the $64 billion valuation at which SoftBank had acquired the remaining 25% stake in Arm Holdings just last month. This stake was purchased from the $100 billion Vision Fund managed by SoftBank. Nevertheless, even with the adjusted valuation, SoftBank’s performance surpasses its previous deal to sell Arm to Nvidia Corp for $40 billion, a transaction that was abandoned last year due to resistance from antitrust regulators.
Arm Holdings priced its IPO shares at $51 each, at the upper end of its projected range, thereby raising a total of $4.87 billion for SoftBank through the sale of 95.5 million shares. The company’s shares are scheduled to commence trading in New York on Thursday.
Arm’s IPO attracted major industry players as cornerstone investors, including tech giants such as Apple, Nvidia, Alphabet, Advanced Micro Devices, Intel, and Samsung Electronics, all of whom expressed their confidence in Arm’s potential.
A Strategic Shift
Arm’s move to go public coincides with its strategic shift to diversify beyond the mobile phone market, where it currently holds a dominant 99% share. The company has been affected by weak demand in the mobile sector due to a global economic slowdown, resulting in revenue stagnation. In the 12 months ending March, Arm’s total sales amounted to $2.68 billion, a marginal dip from the prior year’s $2.7 billion.
During presentations to potential investors in New York, Arm Holdings emphasized its expansion prospects in the cloud computing market, where it holds a 10% share, with expectations of a 17% annual growth rate through 2025, partly driven by advances in artificial intelligence. Additionally, the automotive sector, where Arm commands a 41% share, is projected to expand by 16%, in contrast to the modest 6% growth anticipated in the mobile market.
Dependence On Royalty Fees
Arm Holdings’ reliance on royalty fees, which constitute a significant portion of its revenue, has also been under scrutiny. The company highlighted that royalty revenues have been accumulating since the early 1990s and reached $1.68 billion in the most recent fiscal year, up from $1.56 billion the previous year.
One aspect that has garnered particular attention from investors is Arm’s exposure to China amid geopolitical tensions with the United States, which have heightened the race to secure chip supplies. Sales in China contributed 24.5% of Arm’s $2.68 billion revenue in fiscal 2023.