SoftBank Group's British semiconductor unit Arm is stirring a buzz with its potential blockbuster initial public offering in September, which could be the technology sector's third biggest listing of all time and the largest IPO in the US this year.
Interest is growing as the company prepares to hold roadshows next month for the IPO, reported to value the company between $60 billion and $70 billion. Arm has provided more insight in a prospectus it submitted to the US Securities and Exchange Commission this week.
What is Arm?
Arm manufactures chips based on Arm architecture, which powers the most widely used consumer electronics devices, most notably smartphones, tablets, computers and wearables.
The advantages of Arm-based chips include low-power consumption, faster performance, power efficiency and cost-effectiveness to manufacture. Their small size and scaleability enable them to be used in a wide variety of devices, from wearables to servers.
More than 250 billion chips made by the company are embedded in devices globally, and about 70 per cent of the world's population uses Arm-based technology across all markets, according to its website.
In June, Masayoshi Son, the chairman and chief executive of SoftBank, projected this figure to hit one trillion.
Where would Arm's IPO rank all-time?
If Arm is able to raise a projected $10 billion on its debut, it would be ranked the third highest tech IPO ever, behind only Meta Platforms' (then Facebook) $16 billion in 2012 and Alibaba's chart-topping $25 billion in 2014.
If IPOs from all industries are to be considered, Arm's listing would be in the top 20, data from Statista shows. Saudi Aramco's $25.6 billion IPO in 2019 remains the all-time leader.
That being said, it's also notable that it's been practically a decade since a tech IPO of this magnitude has emerged, and could possibly boost the market.
Why is Arm's IPO key?
Arm is banking on two growing sectors: data centres and artificial intelligence, which has shot up in popularity as of late.
The company aims to focus less on the lagging smartphone market and target customers that make chips for data centres, which are increasingly integrating AI capabilities. Arm says its energy-efficient technology is a good fit for data centres that consume considerable amounts of power.
"As the world moves increasingly towards AI and ML-enabled computing, Arm will be central to this transition ... In the emerging area of large language models, generative AI and autonomous driving, there will be a heightened emphasis on the low power acceleration of these algorithms," Arm said in its prospectus.
Arm said it is working with top companies, including Google parent Alphabet, Facebook owner Meta Platforms, Mercedes-Benz, self-driving car maker Cruise and Nvidia to deploy Arm technology to run AI workloads.
Arm can also take a page out of Nvidia's playbook: having tapped into AI early on, it now enjoys a trillion-dollar market capitalisation. Earlier this month, Nvidia introduced its updated generative AI-focused GH200 Grace Hopper "superchip", which is based on Arm architecture.
Which companies are interested in the IPO?
Apple and Samsung are among big-ticket technology companies that are expected to invest in Arm's IPO, and the world's biggest mobile phone manufacturers will be joined by tech majors Intel and Nvidia, the Nikkei reported earlier this month.
Cambridge-based Arm intends to sell "stakes of a few per cent each" to big chipmakers to make them medium to long-term shareholders, a move meant to "stabilise the stock price at the time of the listing", it said.
Who are Arm's clients?
Some of the world's biggest technology companies are clients of Arm, including fellow chip-makers, those in the automotive industry and Internet of Things.
According to Arm's prospectus, more than 260 companies reported that they had shipped about 30.6 billion Arm-based chips in its fiscal year ended March 31, 2023, including bellwethers Amazon and Alphabet.
In the semiconductor sphere, Arm's client base includes major players Advanced Micro Devices, Intel, Nvidia, Samsung Electronics and Qualcomm.
Arm pointed to the history of tech advancements as the reason for the growth of its reach, from people having just a PC at home decades ago to the advent of smartphones in users' pockets and the arrival of smart cars and connected devices.
"Each of these computers needs at least one CPU, and in many cases more than one. This trend has driven the dramatic growth of Arm-based chips over the past several years," it said.
How has Arm performed financially?
In its fiscal year 2023, which ended in March, Arm said net income declined 4.6 per cent to $524 million, according to its prospectus. However, in fiscal year 2022, net income soared nearly 42 per cent to $549 million.
Revenue for 2023 marginally declined 0.7 per cent to less than $2.7 billion. In fiscal 2022, Arm's revenue surged by a third to a little over $2.7 billion.
The performance of Arm and other chip manufacturers have been tied to industry trends.
The overall semiconductor industry enjoyed a record 2021 that saw sales rising 26 per cent to $556 billion, on 1.15 trillion units shipped, data from the Semiconductor Industry Association had shown.
However, it has been battling a downturn, weighed down by inflation and recession worries in 2022 that weakened consumer demand, resulting in a glut of chip supply that has affected prices.
Demand for AI chips is likely to revive demand in the industry, and with generative AI making waves, this could bode well for the prospects of Arm and its peers.
Are there risks for Arm?
Despite all the hype, Arm has acknowledged certain risks to its business. Among these are the uncertain trends and demands in the chip industry, "intense" competition and the possibility of losing market share, it said in its prospectus.
"If we fail to develop new products in response to, or in anticipation of, rapid technological changes in our industry or the industries we serve, our business may be materially and adversely affected."