Arm has filed with the Securities and Exchange Commission the preliminary documents for a listing on the New York Stock Exchange. For the moment, the purpose of the prospectus is simply to give precise information on the group's financial situation, before specifying the price per share and the portion of the capital that will be open to investors. This is the biggest IPO of the year, and one of the largest in the tech sector since China's Alibaba in 2014. Several media outlets have reported that SoftBank Group hopes to achieve a valuation of at least $60 billion for Arm.

An IPO on Wall Street

Founded in the UK in 1990, Arm was initially a simple joint venture between several companies (including Apple). Its aim was to create an energy-efficient processor for battery-powered devices. Building on its success, the joint venture was listed on the London Stock Exchange in 1998. Now a global reference in semiconductor architecture, Arm was acquired by SoftBank in 2016 for around $30 billion.

At the beginning of March 2023, the Japanese investment group announced its intention to reintroduce Arm to the stock market following the failure, at the beginning of 2022, of its sale to the American company Nvidia. Much to the dismay of the London financial center, where it was listed until 2016, Arm will carry out its IPO in New York. The group will retain its Cambridge headquarters, however, and may consider a second listing on the London Stock Exchange in a second phase, which has been sorely lacking in attractiveness since the Brexit.

Gloomy figures

Behind Arm's enticing business of designing infrastructure technology for various types of chips, and prestigious customers such as Amazon, Alphabet, AMD, Intel, Nvidia, Qualcomm, Samsung and Apple, the group's prospects are less bright. In fiscal 2023, Arm reported a net profit of $524 million on sales of $2.68 billion. Despite very good margins, the group's growth is lacking. Arm's sales for fiscal year 2023 were slightly lower than those for 2022, which stood at $2.7 billion. This is information that the company is trying to put on the back burner in favor of charming communication.

Indeed, the group has a few non-accounting assets to put forward. In addition to a technology included in over 30 billion chips shipped in fiscal 2023, Arm designs the microprocessor architecture found in 99% of all smartphones. However, Arm is facing headwinds from the slowdown in demand for smartphones, which has affected all chip manufacturers. The group argued, however, that its technology would be essential for AI applications, although it focuses on core processors, not graphics processors, which are needed to create large AI models.

"The processor is essential in all AI systems, whether it handles the AI workload entirely or in combination with a coprocessor, such as a GPU or NPU" - Arm

Last but not least, the company stated that its three biggest customers accounted for 44% of its total sales. A significant concentration coupled with the fact that Arm China, an independent entity, accounted for 24% of sales and Qualcomm, which it is currently suing for license infringement, accounted for 11%.

SoftBank's equity carve-out is understandable. Arm's net sales fell by 4.6% year-on-year in the second quarter, and SoftBank's Vision Fund was forced to divest a number of holdings after billions of dollars in losses in recent months, due to failed technology bets in a rising-rate environment.

Partners on the lookout

We're keeping a close eye on the IPO, however, because despite the aforementioned areas of doubt, demand is likely to be there. A number of big names are vying for minority stakes. The Japanese newspaper Nikkei mentioned Apple and Samsung Electronics back in June. The names of Intel,Amazon and above all Nvidia, which was prevented from buying Arm by the antitrust authorities last year, are also circulating. It remains to be seen what the precise price range will be, which will enable a more meticulous analysis of the case. At the start of the year, analysts were forecasting a valuation of around $30 billion, i.e. around the 2016 acquisition price. Since then, this figure may have doubled. In the absence of rising earnings, the magic of AI has come through.