SoftBank-owned chip firm Arm is adjusting its expectations for its upcoming public listing, with a lower valuation and fundraising target. The chip designer, whose customers include major players like Apple, Nvidia, Intel, and Samsung Electronics, now plans to raise between $5 billion to $7 billion, down from its previous goal of up to $10 billion. The valuation is also expected to range from $50 billion to $60 billion, as opposed to the initial target of $60 billion to $70 billion.
These adjustments come as Arm faces challenges such as revenue erosion and a higher exposure to China than anticipated. The company’s recent prospectus revealed that its revenue declined about 1% to $2.68 billion in the last fiscal year. Additionally, Arm’s Chinese operations, primarily conducted through its independent unit Arm China, are its largest customer, accounting for almost a quarter of sales.
Industry analysts have suggested that a valuation of $50 billion to $60 billion is more realistic for Arm’s public listing. This projection would represent a setback for SoftBank founder Masayoshi Son, as the company had acquired a 25% stake in Arm from its Vision Fund for $16.1 billion, valuing Arm at approximately $64 billion.
The ongoing roadshow leading up to the listing on the Nasdaq next week may still impact the final numbers. However, a weaker-than-expected debut could negatively affect SoftBank’s credit outlook, according to Bloomberg Intelligence analyst Sharon Chen. She notes that raising $5 billion to $7 billion may not be enough to offset the impact of SoftBank’s purchase of the Vision Fund’s stake in Arm. As a result, SoftBank’s adjusted loan-to-value ratio could weaken, while its leverage might not meet the requirements for a Ba3 rating by Moody’s.
Chen also highlights that a listing at a lower value may raise questions about the implied $64 billion valuation of the transaction between SoftBank and the Vision Fund.
As Arm prepares for its public debut, it must address investor concerns regarding China risks, the slowing growth of the smartphone market, and the potential earnings boost from advancing artificial intelligence adoption. The final outcome of Arm’s listing will depend on how investors evaluate these factors and the overall performance of the company.
In summary, SoftBank-owned chip firm Arm is scaling back its valuation and fundraising target for its upcoming public listing. The company now aims to raise $5 billion to $7 billion, and the valuation is projected to be between $50 billion and $60 billion. Challenges such as revenue erosion and a significant exposure to China have contributed to these adjustments. The success of Arm’s listing will depend on investor perceptions of China risks, smartphone market growth, and the impact of artificial intelligence adoption on the company’s earnings potential.