Arm CEO Rene Haas and executives cheer as Softbank’s Arm, a chip design firm, holds an initial public offering at the Nasdaq MarketSite in New York, Sept. 14, 2023.
Brendan Mcdermid | Reuters
Arm Holdings, the chip design company controlled by SoftBank, surged by approximately 25% on its first day of trading, following its initial public offering where shares were sold at $51 each.
Upon opening, Arm’s valuation stood at nearly $60 billion. The company, traded under the ticker symbol “ARM,” sold around 95.5 million shares. SoftBank, which took the company private in 2016, currently owns 90% of the outstanding shares.
Arm priced its shares at the higher range of expectations prior to the IPO. On the first day of trading, the stock opened at $56.10 and closed at $63.59.
The British chip company’s valuation of $60 billion represented a significant premium. With a price-to-earnings multiple of over 110, based on the most recent fiscal year profit, Arm’s valuation is comparable to Nvidia’s, which trades at 108 times earnings. However, Nvidia also has a projected growth of 170% for the current quarter, unlike Arm.
During an interview with CNBC, Arm Chief Financial Officer Jason Child stated that the company’s focus is on increasing royalty growth and providing customers with more cost-effective and high-performance products.
A substantial portion of Arm’s royalties are derived from products released several decades ago. Approximately half of the company’s $1.68 billion royalty revenue in 2022 came from products released between 1990 and 2012.
“As a CFO, it’s one of the better business models I’ve seen. I joke sometimes that those older products are like the Beatles catalog, they just keep delivering royalties. Some of those products are three decades old,” Child said.
In an investor presentation, Arm projected that the total market for its chip designs would be worth about $250 billion by 2025, driven by growth in chip designs for data centers and cars. Arm’s revenue for the fiscal year ending in March saw a slight decline of less than 1% compared to the previous year, amounting to $2.68 billion.
Arm’s architecture is widely utilized in smartphone chips and defines how a central processor operates at its most fundamental level, such as performing arithmetic or accessing computer memory.
Child noted that the company sold $735 million in shares to a group of strategic investors, including Apple, Google, Nvidia, Samsung, AMD, Intel, Cadence, Synopsis, Samsung, and Taiwan Semiconductor Manufacturing Company. This demonstrates Arm’s significant influence among chip companies, who rely on Arm’s technology for designing and building their own chips.
“There was interest to buy more than what was indicated, but we wanted to make sure we had a diverse set of shareholders,” Child said.
In a CNBC interview on Thursday, SoftBank CEO Masayoshi Son emphasized the use of Arm’s technology in artificial intelligence chips, as he aims to connect the company to the recent AI and machine learning boom. Son also expressed the intention to retain SoftBank’s remaining stake in Arm for as long as possible.
The successful debut of Arm could pave the way for more technology IPOs, as the market has experienced a pause for nearly two years. This offering is currently the largest technology IPO of 2023.
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