SoftBank’s US arm files for IPO that could be the biggest of this year

SoftBank Group Corp.’s Arm Holdings Ltd. made a move toward what is set to be the largest US initial public offering this year. It was a gamble that the once obscure designer of phone chip could flourish in the age of artificial intelligence computing.

Morgan Stanley was conspicuously absent from the document listing 24 underwriters beneath that top tier.

SoftBank founder Masayoshi Son would be rewarded handsomely if Arm were to make a successful debut. His Vision Fund, which lost $30 billion in a record-breaking loss last year, had been hit by a windfall. This could encourage dozens of other companies to pursue – or delay – their own IPO plans. This includes companies like the online grocery delivery firm Instacart Inc. and marketing and data automation provider Klaviyo as well as footwear manufacturer Birkenstock.

Arm intends to launch its roadshow in the first week of Septembre and price the IPO following that week. The document did not disclose the proposed terms of the share sale, but the company is expected to aim for a valuation between $60 billion and $70 billion. Arm, based out of Cambridge, UK has also held discussions with some its largest customers about supporting the IPO.

SoftBank, which bought Vision Fund’s stake and decided to keep more shares of the company, could lower the target. According to the filing, this transaction valued Arm at over $64 billion.

The offering is expected to be the biggest boost for the struggling IPO industry in nearly two years. This listing will be the biggest in the US market since Rivian Automobile Inc. offered $13.7 billion in October 2021. The listing could be near or just below two of the largest tech IPOs ever: Alibaba Group Holding Ltd.’s $25 billion offering in 2014 and Meta Platforms Inc.’s debut of $16 billion, back when Facebook Inc. was still known.

Arm’s target value reflects the belief that it will profit from the stampede towards artificial intelligence chips, and generative AI – an industry shift which has given chipmaker Nvidia Corp. $1.2 trillion in valuation.

Kyle Stanford, a PitchBook analyst, said that a strong performance by Arm would not only bring SoftBank hefty profits, but it would also confirm its AI strategy, as the hype surrounding AI had not waned.

Arm’s technology, which is used by nearly every smartphone but is not well known to consumers. Arm licenses instruction sets, which are the technology that determines how software communicates with these chips. It sells blueprints for designing microprocessors. Arm’s power-efficient technology has made it a staple in phones where battery life is a major concern.

Rene Haas is working to expand the Arm smartphone market beyond its stagnant state in recent years. He is focusing on advanced computing, notably the chips for data centres and AI applications.

Processors designed for this market are some of the most expensive and profitable in the industry. Inc. adopted Arm-based processors for its Amazon Web Services, claiming they were more efficient in terms of both energy and economics. They are used in AWS by 40,000 customers.

According to the filing, SoftBank will continue to be the controlling shareholder after Arm begins trading. SoftBank of Tokyo has purchased the Vision Fund’s entire 25% stake in Arm. The deal was valued at $16.1 billion. The filing cautioned that the transaction may not reflect the Arm share value after the offering.

The document also confirmed that Arm’s revenue declined by about 1% during its last fiscal. According to the document, the company’s revenue fell to $2.68billion for the fiscal year ending March 31.

A glut of inventory is causing a slump in sales for the entire chip industry. Smartphone sales have been particularly hard hit. Qualcomm, one of Arm’s largest customers, announced a disappointing quarterly forecast earlier this month. This sent its shares plummeting. Even Apple Inc.’s prized iPhone is seeing a slowdown in demand.

The tensions with China could also cast a shadow on Arm’s business. The company cited export restrictions imposed by the US and UK in its filing as a risk, which hindered its ability to sell the Neoverse processor to China.

Arm Holdings Plc plans to change the name of the company to “Arm Holdings Plc”, before trading begins on the Nasdaq Select Market with the symbol ARM. The filing confirms the IPO will have four top banks acting as joint book-running manager.

Arm described itself as an “engineering first company” in the filing. It said that 4,753 employees, or 80% of its global workforce, were focused on design, research and technical innovation. The company stated that it has or co-owns approximately 6,800 patents issued and about 2,700 patent applications worldwide.

More than 260 companies used Arm-based processors in the last fiscal, including, Alphabet Inc. and Advanced Micro Devices Inc. This company has been working with its 10 top customers, measured by royalties revenue, for more than 20 years on average.

AI fever is sweeping the tech industry. Companies will need the correct chips to run complicated software. Arm claims that each processor it designs accelerates the AI and machine-learning tech it helps to power. The company’s processors are already running these technologies and has begun adding new functionality in order to speed up the algorithms.

In order to achieve this, Arm has partnered with Alphabet and other companies such as Cruise Autonomous Driving, Mercedes-Benz Meta, Nvidia, Meta, and Mercedes-Benz in order to implement Arm technology capable of running AI-based software.

Arm was formed in 1990 as a joint-venture between Acorn Computers and Apple, along with VLSI Technology. From 1998 to 2016, the company was listed on both the London Stock Exchange (LSE) and Nasdaq. SoftBank bought the business in 2016 for $32 billion.

SoftBank had previously tried to sell Arm in a $40 Billion deal to Nvidia, which would’ve been the biggest chip industry takeover. Nvidia pulled out of the deal last year after regulators and Arm customers opposed it. SoftBank began its plan to launch the IPO.