Arm Holdings Ltd, a subsidiary of SoftBank Group Corp, has recently disclosed its financial performance, reporting a 1 per cent decrease in its annual revenue due to a slowdown in smartphone sales. This announcement comes as the chip designer prepares for a significant initial public offering (IPO) that is anticipated to be the largest of the year. Arm's upcoming IPO is expected to inject vitality into a somewhat lacklustre IPO market.
Over the past year, several prominent startups have deferred their plans to go public due to the unpredictable nature of market conditions. The British company has demonstrated resilience amidst a downturn in the chip industry, particularly through its expansion into thriving sectors like cloud computing.
For the fiscal year ending on March 31, Arm's revenue declined to $2.68 billion, primarily attributed to a decline in global smartphone shipments. The company's sales for the quarter concluding on June 30 also experienced a dip, falling by 2.5 per cent to reach $675 million.
Arm divulged that over 50 per cent of its royalty revenue in the most recent fiscal year stemmed from smartphones and consumer electronics. However, considering the current trajectory of the global smartphone market, projected to hit a ten-year low this year according to Counterpoint Research, Arm's relatively marginal revenue decline despite its reliance on smartphone royalties may indicate an increase in its per-chip rates.
Notably recognised for powering the majority of smartphones, including iPhones, Arm has refrained from disclosing the exact number of shares it intends to offer or the valuation it will seek in the IPO. A previous report from Reuters indicated that SoftBank plans to divest about 10 per cent of Arm's shares in the IPO, with an expected valuation ranging from $60 billion to $70 billion for the chip designer.
Initially, Arm aimed to generate between $8 billion to $10 billion through its IPO; however, this goal may be adjusted downward due to SoftBank's recent acquisition of the remaining 25 per cent stake in Arm from its Saudi-backed Vision Fund. The agreement was confirmed by SoftBank in a filing made earlier this month.
Arm's history dates back to 1990 when it was established as a collaborative venture involving Acorn Computers, Apple Inc, and VLSI Technology. The company remained publicly listed on both the London Stock Exchange and Nasdaq until 2016, when SoftBank acquired Arm through a $32 billion private transaction.
The anticipation of an IPO for Arm was rekindled following the collapse of a $40 billion deal with Nvidia Corp last year. The deal faltered due to regulatory objections from both US and European antitrust authorities.
Arm's revenue model comprises upfront licensing fees for its technology as well as royalties on each chip sold by its clients. The company has been concentrating on expanding its royalty revenues, citing the enhanced potential of its latest technology to further boost its per-device royalty opportunity.
While Arm's chip designs have a significant presence in the smartphone sector, they are also integral to laptops manufactured by Apple and select Windows devices. Additionally, Arm has secured a 10 per cent market share in the burgeoning field of cloud computing, with its Arm-based chips deployed in networking equipment and central processors within servers.
Despite these successes, Arm has not made substantial progress in the artificial intelligence (AI) market, where Nvidia holds a dominant position. Nevertheless, Nvidia does offer an Arm-based processor as part of its "superchip" offerings that combine AI capabilities with traditional central processing.
Arm disclosed that 24 per cent of its revenue originated from China in the most recent fiscal year. While this aligns with trends in the semiconductor industry, it's worth noting that all of Arm's Chinese revenue is routed through Arm China, a separate entity in which Arm holds an indirect 4.8 per cent stake. Factors such as US and British export controls and a broader downturn in the Chinese economy have contributed to an expectation of declining royalty and licensing revenues from China.
Sources have indicated that SoftBank engaged in discussions with several technology firms, including Amazon.com and Nvidia, regarding potential investments in Arm's IPO.
Arm's imminent listing is poised to invigorate the IPO market, coinciding with the anticipated public debuts of well-known entities such as Instacart, Klaviyo, and Birkenstock in the coming weeks.
As part of its listing strategy, Arm is planning to list on the Nasdaq exchange under the ticker symbol 'ARM'. Leading financial institutions including Barclays Plc, Goldman Sachs, JPMorgan Chase, and Mizuho Financial Group are serving as the primary underwriters for the IPO. Notably, Arm has opted not to designate a traditional "lead left" bank, instead evenly distributing underwriter fees among these four key banks.