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Arm, Semiconductor Designer Supported By Softbank, Has Disclosed Filing For A Massive U.S. IPO

Arm, Semiconductor Designer Supported By Softbank, Has Disclosed Filing For A Massive U.S. IPO
The chip designer Arm Holdings, which is funded by SoftBank Group, stated in its application for a U.S. initial public offering (IPO) that is anticipated to be the largest listing of the year that its annual revenue fell 1% as a result of a slowdown in smartphone sales.
Its IPO is anticipated to revive the sluggish IPO market, which over the past year has seen many high-profile businesses postpone their intentions to list owing to market turbulence.
The British company has fared better than others during the crisis in the chip sector and is expanding into markets that are still thriving, such cloud computing.
Arm's sales decreased to $2.68 billion for the fiscal year that ended on March 31, primarily due to a decline in global smartphone shipments. The quarter ended June 30 saw a 2.5% decline in sales, at $675 million.
In its most recent fiscal year, Arm reported that consumer electronics and cellphones accounted for more than 50% of its royalty income. According to Counterpoint Research, the global smartphone market is on pace to fall to its lowest level in a decade this year.
Despite heavily depending on royalties from cellphones, Arm's revenue has only slightly decreased, which means its per-chip prices have gone up.
The business, whose chip technology powers the majority of devices, including iPhones, did not disclose the quantity of shares it planned to sell or the price it would seek for them.
According to prior reports from Reuters, SoftBank (9984.T) intended to sell approximately 10% of Arm's shares in the IPO and was aiming for a price of $60 billion to $70 billion for the chipmaker.
After SoftBank acquired the 25% share in Arm that it did not already directly control from its Saudi-backed Vision Fund, Arm is now anticipated to raise less money from the IPO than it had originally planned to, raising only $8 billion to $10 billion.
In its filing on Monday, SoftBank confirmed the agreement with the Vision Fund. The Japanese conglomerate's stock increased 1.4% at Tuesday's closing price.
"Although they (market conditions) look a little more clement compared to the volatility which hit the tech sector last year, recent summer weakness is clearly pushing the firm to list Arm sooner rather than later," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
As a joint venture between Acorn Computers, Apple (then known as Apple Computer), and VLSI Technology, Arm was established in 1990. From 1998 until 2016 when SoftBank purchased Arm for $32 billion, the firm was traded on the Nasdaq and the London Stock Exchange.
After a deal to sell Arm to Nvidia for $40 billion fell through last year because to concerns from American and European antitrust regulators, SoftBank started making plans for an IPO of the company.
In addition to upfront technology licencing fees, Arm also receives a royalty on each chip that its clients sell.
According to its filing, the business has been increasing those royalty revenues and claims that the most recent iteration of its technology has the "potential to drive our royalty opportunity per device even higher."
The majority of smartphones employ Arm's chip designs, although they are also found in select Apple and Windows PCs.
Additionally, its technology has increased its market share by 10% in the cloud computing sector, where Arm-based chips are used both as the servers' main processors and for networking.
In the artificial intelligence (AI) industry, where Nvidia is the market leader, Arm has yet to make significant headway. Nvidia does, however, provide an Arm-based processor as part of one of its "superchip" products, which combines an AI chip with a conventional central processor.
"The obsession with all things AI is still super-strong and the semi-conductor designer will be using AI as its calling card to entice investors as it heads towards the launch," Streeter said.
According to Arm, in its most recent fiscal year, China accounted for 24% of its sales. This is somewhat in line with many other chip firms, although Arm China, a separate company in which it only indirectly owns a 4.8% interest, generates the majority of its revenue.
Arm stated that it anticipates falling royalty and licencing revenue from China as a result of export restrictions put in place by the governments of the United States and the United Kingdom and a general slowdown in the Chinese economy.
According to a Reuters article from August, SoftBank had discussions with a number of technology firms who are considering participating in Arm's IPO, including and Nvidia.
With huge names like supermarket delivery service Instacart, marketing automation company Klaviyo, and German sandal manufacturer Birkenstock scheduled to go public in the coming weeks, Arm's offering is predicted to give the IPO market a much-needed lift.
Arm stated that it intends to IPO on the Nasdaq and trade using the ticker "ARM".
The offering's main underwriters are Barclays, Goldman Sachs, JPMorgan Chase, and Mizuho Financial Group.
Arm chose not to select a conventional "lead left" bank and will divide underwriting fees equally among the top four banks. Arm tapped a total of 28 banks for the IPO.

Christopher J. Mitchell

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