14 Sep, 2023

Arm shares flex muscles as tech IPO market shows new signs of life

By Mark Anthony Gubagaras and Annie Sabater


Though Arm Holdings PLC's path back to the public markets was hampered by missed expectations and a failed deal, the company's persistence seems to be paying off.

Shares in the UK chip designer debuted Sept. 14 on Nasdaq at $56.10 apiece, above the $51-per-share price set for the IPO. Parent SoftBank Group Corp. had put up 95.5 million for sale, or a 10% stake in the company, for total gross proceeds of $4.87 billion.

Ranked by total gross proceeds, this makes Arm the third-largest IPO of a US-listed technology, media and telecommunications company on record, behind social networking company Meta Platforms Inc. and ride-hailing company Uber Technologies Inc., S&P Global Market Intelligence data shows.

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At open, Arm's valuation was about $60 billion on a fully diluted basis. While the valuation is bigger than the $31.51 billion that SoftBank paid when it took the company private in 2016, it is still below the $64 billion implied by SoftBank when it purchased a 25% stake in Arm held by its SoftBank Vision Fund LP for about $16 billion.

Arm CEO Rene Haas described the company's journey prior to its IPO this year as "a long road with lots of twists and turns we never anticipated nor expected."

In 2020, SoftBank tried to sell Arm outright to chipmaker Nvidia Corp. for $38.59 billion. The deal was blocked by US regulators, and the companies abandoned the transaction in early 2022. Later that year, a broad pullback in tech stocks froze up the market for tech IPOs.

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Despite these setbacks, a number of Arm's biggest customers agreed to invest in its IPO, including iPhone-maker Apple Inc.; fellow chipmakers Advanced Micro Devices Inc., Intel Corp. and Taiwan Semiconductor Manufacturing Co. Ltd.; and consumer electronics company Samsung Electronics Co. Ltd.

Nvidia also agreed to buy shares in the IPO. Nvidia is attracting interest for its continued push into AI, an area that Haas said will be the focus of Arm's future expansion. Arm is historically known for its smartphone chips, but the company has expanded its offerings to include platforms used in other mobile devices, cloud infrastructure, the internet of things and automotive services.

While the shift to AI could help Arm grow in the future, the strategy is not without its challenges. The company's biggest customer is Arm China, which operates independently from Arm but sells Arm products. Arm China generated virtually all of Arm's sales to China, amounting to almost 25% of Arm's total revenue in fiscal 2023. As Arm noted in its prospectus, its reliance on Arm China and revenues from that country make Arm "particularly susceptible to economic and political risks."

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Arm also faces competition from open-source technologies like the RISC-V architecture. It is still early days for RISC-V, but Arm said in its prospectus that customers could one day choose to utilize this free, open-source architecture.

While Arm's long-term performance on the public market remains to be seen, its near-term impact on the tech IPO market seems certain. More tech IPOs are expected to move forward following its success, with Instacart and Klaviyo already making preparations.

Prior to Arm's debut, the largest technology, media and telecommunications IPO to date in 2023 was Xiao-I Corp.'s, which began trading March 9 on Nasdaq with gross proceeds of $38.8 million. The Chinese AI company offered 5.7 million shares at $6.80 per share.

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