The public re-listing of British chip designer Arm, owned by SoftBank since 2016, is eagerly awaited within the semiconductor industry and beyond.
Boyden's perspectives on the news and trends that are transforming industries
Arm and SoftBank have made headlines recently in anticipation of the IPO, which Softbank said in February will take place by March 31, 2023. The announcement followed the demise of American chipmaker Nvidia’s $40 billion deal to acquire Arm. Now aspiring investors and buyers are queuing up. Qualcomm, another U.S. chipmaker, has expressed interest in forming a consortium to take a controlling stake or purchase the firm. The British government, which is pressing to have Arm list in London, argues that it should have a “golden share”.
Arm is clearly coveted, though the reasons may not be readily apparent. The company is performing well, but it is still fiscally dwarfed by the likes of Intel, TSM and Qualcomm. Intel’s revenue was $79 billion in 2021, while a 35% increase lifted Arm’s to $2.7 billion. Based on the ill-fated Nvidia deal, Arm’s valuation has increased by about 25% in six years. In the same period, according to The Economist, Qualcomm’s market cap is up by half and Nvidia’s has risen 13-fold.
Rather than manufacturing chips, Arm focuses on designing them and trading in intellectual property (IP). It is the world’s top semiconductor IP company. Customers license its chip designs, sometimes modify them, and then sell chips made from them. Arm earns revenue from licensing fees and royalties from chip sales. Thus it may not sit amongst the giants, but its IP powers many of their products, giving Arm a principal role within the $500 billion semiconductor industry.
The more complex chips become, the more willing manufacturers are to outsource the already difficult job of designing them. Arm’s IP can be found in billions of mobile devices and other connected objects. New Street Research estimates that the company has a 99% share of the $25 billion market for smartphone chips. Its technology is also present in many tablets, and increasingly PCs and laptops.
There is potential for Arm to conquer other markets, such as the high-performance servers used in data centres. This has been Intel’s territory for decades, but Arm is making inroads with big cloud service providers. Amazon Web Services (AWS) based its Graviton server chip, now in its third generation, on Arm architecture. Hewlett Packard Enterprise (HPE) recently announced a CPU supplier agreement with Ampere Computing, a maker of Arm server chips. TrendForce predicts a 22% adoption rate of Arm architecture in data centre servers by 2025.