The largest IPO of the year, Arm officially landed on NASDAQ with a market value of over 65 billion US dollars
Time:2023-09-19
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On September 14th, ARM Holdings, a British chip design company under Japan‘s Softbank Group, officially listed on the NASDAQ stock exchange in the United States, issuing stock code "ARM" and priced at $51/ADS (American Depositary Shares). The stock price rose 10% to $56.10/ADS after opening. As of the close of the first day, Arm‘s stock price rose 24.69% to $63.59. If calculated at the closing price, the market value of Arm on its first day of listing is $65.248 billion. Including restricted stock units, Arm‘s fully diluted valuation is close to $68 billion. This value is close to twice the transaction price of $32 billion that Japan‘s Softbank Group acquired in September 2016.
According to the IPO documents, cornerstone investors such as AMD, Apple, Cadence, Google, Intel, and affiliated entities of MediaTek, Nvidia, Samsung Electronics, Synopsis Technology, and TSMC have expressed interest in purchasing a total of $735 million in ARM shares. In addition, Arm has reached a new long-term agreement with Apple, which will allow Apple to continue its partnership using the Arm architecture until 2040.
Arm is riding the "east wind" of the artificial intelligence trading boom and is expected to regain investor interest after two years of silence in the technology IPO market. This will be the largest IPO of the year, and its listing performance will become the "wind vane" for technology stock IPOs.
This successful listing of Arm will become the world‘s largest IPO this year. Arm has also become the third largest IPO in technology history, after Alibaba‘s $25 billion IPO in 2014 and Meta Platforms Inc.‘s $16 billion IPO in 2012.
Due to multiple risks such as a slowdown in the smartphone industry, investors are concerned that Arm‘s performance will decline in the recent quarter. However, ARM‘s investment advisor stated that "investors have little sensitivity to price", with many of them passively buying the stock due to ARM‘s inclusion in the Nasdaq Composite Index.
ARM‘s smartphone chip market has stagnated this year, but the company hopes to gain growth from AI and data center customers, although ARM has only played a peripheral role in building the technology needed to provide large-scale language models for ChatGPT and other generative AI.
Arm‘s revenue and net profit declined in the 2023 fiscal year, and this downward trend is still ongoing. The latest quarterly financial report as of June 30th shows that Arm‘s revenue decreased by 2.5% year-on-year to $675 million, and its net profit decreased by more than half from $225 million in the previous fiscal year to $105 million.
ARM CEO Rene Haas stated in a promotional video: "Artificial intelligence will be ubiquitous, and all AI will run on ARM‘s software. Our opportunities are infinite, and with the advent of the AI era, global computing needs cannot be met
According to a report by Beijing Business Daily on September 6th, the appearance of NVIDIA CEO Huang Renxun in a roadshow video has attracted attention. In 2020, Nvidia planned to acquire Arm for $40 billion, but faced opposition from regulatory agencies in the United States and the United Kingdom, and the two companies abandoned the deal in 2022.
The failure of the acquisition did not prevent Huang Renxun from expressing his recognition of Arm in the Arm video roadshow. Huang Renxun stated that NVIDIA‘s new Grace Hopper AI "superchip" would not have been possible without ARM‘s architecture, ARM CPU‘s incredible performance, and business model.
In addition to NVIDIA, MediaTek executives also appeared in Arm roadshow videos. This reflects the importance of Arm chip architectures, which are increasingly being used in the design of data center servers, consumer devices, and industrial product chips. From a historical perspective, Intel chips have dominated the field of data center servers.
As a major player in the chip industry, Arm is a leading global provider of semiconductor intellectual property (IP) and one of the most important companies in the global technology field. Arm stated in its prospectus that over 99% of smartphones worldwide use ARM architecture chips, with products covering approximately 70% of the global population. From Qualcomm to MediaTek, to Apple and Samsung, a large number of chip design manufacturers rely on ARM architecture. In 2023 alone, the shipment volume of chips based on ARM architecture reached 30.6 billion.
Arm is located upstream of chips, and its main business model is to design IPs, including instruction set architectures, microprocessors, graphics cores, and interconnection architectures, and then authorize chip manufacturers to help them design chips more quickly. One of the company‘s founders, Mike Muller, characterized ARM as: "We just need to draw the engine drawings and sell them
Therefore, Arm‘s charging target is the chip, not the terminal‘s mobile phone. Compared to other high-tech enterprises, when granting their patents to hardware companies for use, their product pricing is based on terminal product fees, which are generally much higher than ARM‘s fees.
There are three charging methods for ARM: charging ARM architecture and IP authorization fees; On the basis of the selling price of each chip, a certain proportion of "commission" (about 1% to 2%) is collected, which is a royalty; Charge through software services. In order to gain greater market share, Arm has taken a unique approach and wants to directly charge hardware device manufacturers, rather than just chip manufacturers for license and royalty fees.
However, due to the sluggish global consumer electronics market, Arm‘s financial performance in the past year has not been ideal. Data shows that from fiscal year 2021 to fiscal year 2023, Arm‘s annual revenue was $2.027 billion, $2.703 billion, and $2.679 billion, respectively; The net profit was $388 million, $549 million, and $524 million, respectively. The latest quarterly financial report as of June 30th shows that Arm‘s revenue decreased by 2.5% year-on-year to $675 million, and its net profit decreased by more than half from $225 million in the previous fiscal year to $105 million.
In addition to trying to increase the price of licensing fees, Arm has also been striving to explore new sources of growth. In addition to selling licenses to smartphone manufacturers, it is also expanding into the cloud computing and automotive markets. Its cloud computing manufacturer customers include China‘s Alibaba and Tencent.
Under the pressure of the AI arms race, major cloud computing companies are striving to expand their AI computing power, increasingly shifting investment to server chips in data centers. Amazon, Google, and Microsoft are all working day and night to develop server chips based on Arm architecture.
Arm estimates that he currently holds a 10% share in the $18 billion cloud processor market, slightly higher than the 7% in 2020, and expects this market to grow at double-digit percentages in the coming years.
China is ARM‘s largest overseas market, and almost all of ARM‘s revenue in China comes from Anmou China. According to data, in fiscal years 2022 and 2023, Anmou China (Arm China) accounted for 18% and 24% of Arm‘s total revenue, respectively, with nearly a quarter of its revenue (2023 data) coming from the Chinese market.
Arm China has the exclusive right to grant chip design intellectual property rights to customers in the Chinese market, including smartphone manufacturers such as Huawei, Xiaomi, and OPPO.
During the roadshow, the CFO of Arm specifically mentioned the importance of the Chinese market and the partnership with Anmou China. According to his introduction, the relationship between Arm and Anmou China is that ARM provides technology, and Anmou China refunds ARM 90% of its revenue in China.
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