SoftBank-backed chip designer Arm reveals filing for blockbuster U.S. IPO

SoftBank Group Corp’s Arm Holdings Ltd reported a 1-percent fall in annual revenue due to a slowdown in smartphone sales, after the chip designer disclosed the paperwork for an initial public offering (IPO) that is expected to be the largest of the year.

Arm‘s stock market launch is expected to bring back to life a lackluster IPO market, which has over the last year seen several high-profile startups postpone their listing plans due to market volatility. The British firm has weathered the chip industry downturn better than most and is moving into segments that are still booming, such as cloud computing.

For the year ended March 31, Arm‘s sales declined to $2.68 billion, hurt mainly by a slump in global smartphone shipments. Sales for the quarter ended June 30 fell 2.5 percent to $675 million.

Arm said that more than 50 percent of its royalty revenue for the most recent fiscal year came from smartphones and consumer electronics. The global smartphone market is on track to hit a decade low this year, according to Counterpoint Research. Arm‘s modest decline in revenue, despite heavy reliance on smartphones for royalties, suggests that its per-chip rates have increased.

The company, whose chip technology powers most smartphones including iPhones, did not reveal the number of shares it is planning to sell and the valuation it will seek. Reuters has previously reported that SoftBank plans to sell about 10% of Arm‘s shares in the IPO and seek a valuation of between $60 billion and $70 billion for the chip designer.

Arm was earlier planning to raise between $8 billion to $10 billion from the IPO, but is now expected to raise less capital, after SoftBank bought the 25-percent stake in Arm it did not directly own from its Saudi-backed Vision Fund, Reuters first reported earlier in August. SoftBank confirmed the deal with the Vision Fund in its filing on Monday.

Second crack at IPO

Founded in 1990, Arm was launched as a joint venture between Acorn Computers, Apple Inc (when it was known as Apple Computer), and VLSI Technology. The company was publicly listed on the London Stock Exchange and the Nasdaq from 1998 until 2016 when SoftBank took Arm private for $32 billion.

SoftBank began preparations for an IPO of Arm after a deal to sell the company to Nvidia Corp for $40 billion collapsed last year over objections from U.S. and European antitrust regulators.

Arm makes money from upfront licensing fees for technology and then a royalty paid on each chip sold by Arm‘s customers. The company has been expanding those royalty revenues, saying that the newest version of its technology has the “potential to drive our royalty opportunity per device even higher,” according to its filing.

Arm‘s chip designs dominate the smartphone industry, but they are also used in laptops made by Apple and some Windows machines.

Arm‘s technology has also gained 10 percent market share in cloud computing, where Arm-based chips are used in networking as well as the central processors in servers.

The one place where Arm has yet to make major inroads is in the artificial intelligence (AI) market, where Nvidia is the leading player, though Nvidia does offer an Arm-based processor as part of one of its “superchip” offerings that combines an AI chip with a traditional central processor.

Arm said 24 percent of its revenue came from China in its most recent fiscal year. That is broadly in line with many other companies in the semiconductor industry, but Arm‘s revenue all comes through Arm China, a separate company in which it has only an indirect 4.8-percent stake.

Arm said that export controls imposed by the U.S. and British governments and a general downturn in the Chinese economy mean that “we expect to continue to see declining royalty revenues, and we could see a decline in licensing revenues, derived from” China.

Earlier in August, Reuters reported that SoftBank had held talks with several technology companies, including Amazon.com and Nvidia, which are considering investing in Arm‘s IPO.

Arm‘s listing is expected to provide a much-needed boost to the IPO market, with big names including grocery delivery service Instacart, marketing automation firm Klaviyo, and German sandal maker Birkenstock expected to go public in the coming weeks.

Arm said it expects to list on the Nasdaq and trade under the ticker symbol ‘ARM‘.

Barclays Plc, Goldman Sachs, JPMorgan Chase, and Mizuho Financial Group are the lead underwriters for the offering. Arm, which tapped a total roster of 28 banks for the IPO, has not picked a traditional “lead left” bank and will split underwriter fees evenly among the top four banks.

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