The upcoming initial public offering (IPO) of Arm Holdings, the renowned semiconductor designer, is stirring a frenzy among the world’s leading technology companies, eager to secure a piece of the action. The scramble for shares, fueled by a desire to strengthen commercial ties and gain an edge over rivals, is putting Arm’s commitment to neutrality in the chip industry to the test.
The "Switzerland of Chips" Under Scrutiny
Arm’s unique position as a neutral player in the semiconductor landscape, often dubbed "the Switzerland of chips," stems from its business model. The company licenses its semiconductor designs, the blueprints for building chips, to a diverse range of customers, spanning from smartphone giants to cloud computing behemoths. These designs, fundamental to the operation of devices from the smallest sensors to the most powerful supercomputers, power over 99 percent of the world’s smartphones and account for over 30 billion chips manufactured annually.
While Arm’s IPO aims to raise up to $70 billion, the stakes go beyond financial gain. Customers like Apple, Amazon, Intel, Nvidia, Alphabet, Microsoft, Samsung Electronics, and TSMC see this investment as a strategic move to cement their influence over Arm and, consequently, the wider chip ecosystem. The 10 percent of shares allocated to clients in the IPO, while not granting board seats or strategic control, represent a powerful tool for influence and industry networking. As Jack Gold, founder of technology consultancy J. Gold Associates, aptly put it, "These guys want to be able to feed their technology needs back into Arm so that their needs get put into Arm’s intellectual property."
A High-Stakes IPO: Clients vying for Influence
Companies like Apple have a long-standing history with Arm, dating back to its founding in 1990. Its reliance on Arm technology for chips in iPhones and Mac computers has allowed the company to significantly reduce its dependence on Intel as a supplier. Similarly, Samsung, through its executive chairman Jay Lee, has cultivated strong ties with SoftBank CEO Masayoshi Son, further strengthening its relationship with Arm.
Intel, a major player in the chip industry, sees its investment in Arm as a strategic move to expand its foundry business and compete with giants like TSMC in contract chip manufacturing. This requires a closer relationship with Arm to ensure it can produce Arm-based chips for its diverse clientele.
TSMC, a key manufacturer of Arm-based chips for numerous technology companies, has also been actively pushing for the adoption of Arm’s designs due to their cost-efficiency and performance.
Amazon, with its proprietary chip, Graviton, has been using Arm technology to power its cloud infrastructure, reducing its reliance on Intel and Advanced Micro Devices. As Amazon looks to expand its hardware portfolio, its relationship with Arm is set to become even more critical.
Alphabet and Microsoft, although lagging behind Amazon in developing self-sufficiency in chip design, are also vying for a stronger presence in the Arm ecosystem. Alphabet aims to secure supplies for its flagship Pixel phones, while Microsoft’s focus lies in ensuring compatibility with its Windows platform.
A $70 Billion Question: Valuation and Potential Risks
While these strategic partnerships are clear, the final outcome of these investments remains uncertain. The proposed valuation of Arm at $64 billion, set by SoftBank’s Vision Fund, could potentially lead some companies to reconsider their bids. Dylan Patel, chief analyst at SemiAnalysis, highlights this uncertainty, stating, "The valuation seems kind of high, and people are awaiting what valuation comes in at."
The potential high valuation coupled with the limited 10% allocation of shares in the IPO could also lead to concerns about liquidity of Arm’s stock post-IPO. The potential for a bidding war, as companies compete to secure shares, adds another layer of complexity to an already high-stakes operation.
The IPO of Arm Holdings is a pivotal moment for the semiconductor landscape. The sheer number of tech giants vying for a stake in the company highlights the critical role Arm plays in the global chip ecosystem. As the company transitions into a publicly traded entity, its commitment to neutrality will be put to the test, and its relationship with its powerful clientele will be closely scrutinized. The success of this IPO will undoubtedly shape the future of Arm and the broader semiconductor industry for years to come.
