SoftBank-Backed Chip Designer Arm Launches $54-Billion IPO

Arm, the chip design firm that plays a pivotal role in the technology ecosystem, providing core technology to tech giants like Apple and Nvidia, has successfully priced its much-anticipated initial public offering (IPO) at $51 per share. This move catapults Arm’s fully diluted market capitalization, taking into account restricted stock units, to an impressive $54 billion at the $51 offering price. The company made this announcement via a press release, revealing that it will commence trading on Thursday under the symbol “ARM.”

Hailing from the United Kingdom, Arm is set to list a minimum of 95.5 million American depository shares on the Nasdaq. Interestingly, SoftBank, the current owner, will continue to hold around 90% of the company’s outstanding shares, reaffirming its commitment to the firm.

It’s worth noting that this IPO has been executed at the upper end of Arm’s expected price range, which was initially projected to be between $47 and $51 per share.

In its prospectus, Arm disclosed that its revenue for the fiscal year ending in March experienced a marginal decrease of less than 1% compared to the previous year, totaling $2.68 billion. Simultaneously, the net income for fiscal 2023 saw a 22% decline, amounting to $524 million.

Arm finds itself riding the wave of excitement surrounding artificial intelligence, positioning itself to reinvigorate the tech IPO market, which has been relatively quiet for nearly two years. This IPO marks a significant milestone, as it is set to become the year’s largest technology offering.

In terms of valuation, Arm’s position in the chip industry is indeed enviable, trailing only behind Nvidia. With a market capitalization of $54 billion, Arm boasts a price-to-earnings multiple of approximately 104, based on its latest fiscal year’s profit. By comparison, Nvidia is valued at 108 times earnings, but this is in anticipation of a staggering 170% revenue growth for the current quarter, primarily driven by AI chips. In contrast, the Invesco PHLX Semiconductor ETF, designed to gauge the performance of the 30 largest U.S. chip companies, maintains a modest price-to-earnings ratio of about 25.

Notably, Arm enjoys a prestigious clientele, including tech giants such as Apple, Google, Nvidia, Samsung, AMD, Intel, and Taiwan Semiconductor Manufacturing Company, all of whom have expressed their intent to purchase shares as part of this offering. Arm’s technology serves as the bedrock for 99% of mobile processors worldwide.

Arm’s significance lies in its architecture, which delineates the fundamental workings of a central processor, encompassing essential aspects like arithmetic operations and memory access. Established in 1990 with a focus on building chips for battery-powered devices, the company gained significant traction when it became a prominent fixture in smartphone chips. Arm’s instruction set is celebrated for its energy efficiency compared to the x86 architecture employed in PC and server chips by Intel and AMD.

While some of Arm’s customers utilize its instruction set to design their own CPUs, Arm also licenses complete designs to chipmakers, enabling them to integrate Arm’s CPU cores into their chips. A noteworthy example is Amazon, which employs Arm CPU designs in certain server chips.

In a presentation to investors, Arm officials articulated their vision of expanding beyond smartphones, targeting the data center and AI applications segments. They foresee the chip design market’s total worth reaching approximately $250 billion by 2025.

Information for this briefing was found via the Financial Times, CNBC, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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