Arm Holdings, the chip designer owned by SoftBank Group Corp, has reported a 1% decline in annual revenue due to a slowdown in smartphone sales. The company is set to go public with its initial public offering (IPO), which is expected to be the largest of the year. Arm’s IPO is anticipated to revive the lackluster IPO market, which has seen several startups postpone their listings due to market volatility.
Despite the decline in revenue, Arm has fared better than most in the chip industry downturn and is expanding into thriving segments such as cloud computing. The company’s sales for the year ended March 31 fell to $2.68 billion, primarily affected by a slump in global smartphone shipments. In the quarter ended June 30, sales declined by 2.5% to $675 million.
Over 50% of Arm’s royalty revenue for the last fiscal year came from smartphones and consumer electronics. However, the global smartphone market is projected to reach a decade low this year. Arm’s slight decline in revenue, despite relying heavily on smartphones for royalties, suggests an increase in its per-chip rates.
Arm, known for its chip technology that powers most smartphones including iPhones, has not disclosed the number of shares it plans to sell in the IPO or the valuation it seeks. Reports suggest that SoftBank intends to sell approximately 10% of Arm’s shares and aims for a valuation between $60 billion and $70 billion.
Arm’s earlier plan was to raise $8 billion to $10 billion from the IPO. However, after SoftBank purchased the remaining 25% stake in Arm, the capital to be raised is expected to be lower. SoftBank confirmed this deal with its Vision Fund in a recent filing.
Founded in 1990, Arm entered the market as a joint venture between Acorn Computers, Apple Inc (then known as Apple Computer), and VLSI Technology. It was publicly listed on the London Stock Exchange and Nasdaq until 2016, when SoftBank took the company private for $32 billion.
SoftBank started preparations for Arm’s IPO after a deal to sell the company to Nvidia Corp for $40 billion fell through due to objections from U.S. and European antitrust regulators.
Arm generates revenue through upfront licensing fees for technology and royalties from each chip sold by its customers. The company has been expanding its royalty revenues and believes that its latest technology has the potential to further increase its opportunity per device.
While Arm dominates the chip designs in the smartphone industry, it is also present in Apple laptops and some Windows machines. The company has gained a 10% market share in cloud computing, where its chips are used in networking and central processors for servers.
However, Arm has yet to make significant progress in the artificial intelligence (AI) market, where Nvidia currently leads. Nvidia does offer an Arm-based processor as part of its superchip offerings that combine an AI chip with a traditional central processor.
In the last fiscal year, 24% of Arm’s revenue came from China. This percentage aligns with other companies in the semiconductor industry. However, Arm’s revenue from China is funneled through its separate entity, Arm China, in which it holds an indirect 4.8% stake. Export controls imposed by the U.S. and British governments and the overall downturn in China’s economy are expected to contribute to declining royalty and licensing revenues from the country.
In August, reports emerged that SoftBank had engaged in talks with several technology companies, including Amazon.com and Nvidia, which are considering investing in Arm’s IPO.
Arm plans to list on the Nasdaq exchange and trade under the ticker symbol ‘ARM’. Barclays Plc, Goldman Sachs, JPMorgan Chase, and Mizuho Financial Group have been selected as the lead underwriters for the offering. Arm has assembled a total roster of 28 banks for the IPO and will split underwriter fees evenly among the top four banks. With Arm’s listing expected to bring a much-needed boost to the IPO market, other companies such as Instacart, Klaviyo, and Birkenstock are also preparing to go public in the coming weeks.
In conclusion, Arm Holdings is set to go public with its IPO, despite reporting a slight decline in annual revenue due to a slump in smartphone sales. The chip designer aims to capitalize on its strong position in the industry and expand into booming segments such as cloud computing. While the IPO is expected to inject life into the IPO market, Arm faces challenges in the AI market and potential revenue decline from China. However, with the backing of significant underwriters, Arm’s listing is highly anticipated.
