Arm touts cloud computing expansion, royalty revenue
SOFTBANK Group’s Arm Holdings on Thursday (Sep 7) told potential investors in its roughly US$5 billion initial public offering (IPO) that cloud computing expansion and royalty revenue represented major growth areas for the chip designer.
In a gathering of more than 100 investors at one of New York’s most luxurious hotels, Arm chief executive Rene Haas and his management team gave details on the company’s prospects beyond the mobile phone market, of which it already commands a 99 per cent share, people who were in attendance said.
Weak mobile demand during a global economic slowdown has caused Arm’s revenue to stagnate. Overall sales totalled US$2.68 billion in the 12 months to the end of March, compared to US$2.7 billion in the prior period.
Arm is seeking a valuation on a fully diluted basis of US$50 billion to US$54.5 billion, less than the US$64 billion SoftBank assigned to it in a transaction last month with the US$100 billion Vision Fund that it manages.
While some investors and bankers that Reuters spoke with after the presentation were upbeat, it remained unclear how strong the IPO’s reception would be. Arm has already secured the participation of several customers, including Apple, Nvidia and Alphabet, as investors in the IPO. It is scheduled to close the books and price the offering on Sep 13.
Arm told potential investors on Thursday that the cloud computing market, of which it has only a 10 per cent share and therefore more room to expand, is expected to grow at an annual rate of 17 per cent through 2025, partly thanks to advances in artificial intelligence. The automotive market, of which it commands 41 per cent, is forecast to expand by 16 per cent, compared with just 6 per cent growth expected for the mobile market.
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“They said that Apple use 100 per cent Arm architecture (because of Arm’s dominance in smartphones). The future growth driver is to expand market share in the Windows PC market,” said Ryuta Makino, a research analyst at Gabelli Funds.
Arm also told investors its royalty fees, which account for most of its revenue, were accumulating since it started collecting them in the early 1990s. Royalty revenue came in at US$1.68 billion in the latest fiscal year, up from US$1.56 billion a year before.
An area of scrutiny for investors has been Arm’s exposure to China, given geopolitical tensions with the United States that have led to a race to secure chip supplies. Sales in China contributed 24.5 per cent of Arm’s US$2.68 billion revenue in fiscal 2023.
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Virtually all of that revenue comes from Arm China, an independent entity with exclusive rights to distribute Arm’s technology in the country and is Arm’s largest customer. ARM China has a history of late payments and presents “significant risks” to Arm’s business, the company’s IPO filing said.
Arm said in the filing that it was owed US$386.9 million by Arm China as of the end of March. Arm’s chief financial officer has told investors during the marketing of the IPO that the company was not concerned about being paid back. REUTERS
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