Chip designer Armi’s architecture is used in practically all smartphones, but there are a number of question marks surrounding the company’s stock market listing, writes HS Vision editor Jaakko Närhi.
Even you everything should be fine.
The stock market listing of the British chip designer Armi is likely to be the biggest of the year, and it is backed by a large number of giants in the technology industry.
The company’s position is also stable. Chips based on its architecture can be found in practically every smartphone in the world and in many other places.
Still, the atmosphere around Armi’s listing seems reserved.
Japanese Softbank bought Arm out of the stock market for $32 billion in 2016.
of The Wall Street Journal according to the CEO of Softbank Masayoshi Son painted in connection with the deal, how Arm would quintuple its value in five years. Didn’t quintuple.
A couple of years ago, Softbank was about to sell the company to industry giant Nvidia for $40 billion, but the deal fell through last year due to opposition from competition authorities.
Armin and Softbank representatives this week in the United States began a so-called the roadshowwhose purpose is to sell the company’s story to investors.
There must be a need for sales pitches.
News agency Bloomberg reported back in August that Softbank is expected to seek a $60-70 billion valuation for Arm in an IPO.
This idea is supported by the fact that in the summer Softbank bought the last 25 percent of Arm’s shares from its own investment fund at a valuation of 64 billion dollars. However, Softbank said the valuation was based on previous contractual obligations.
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It is particularly exposed to economic and political risks related to China, which may escalate due to, among other things, the tightening of trade relations between China and the United States.
On Tuesday, the companies said that Softbank intends to sell approximately 10 percent of Armi’s shares in the IPO, and estimates that the price of the shares will be between 47 and 51 dollars in the IPO.
At that price bracket, Armi’s market value would be 48–52 billion dollars. A lower price than previous estimates may indicate weaker interest than expected.
Armin among customers, among others, technology giants Apple and Alphabet, as well as chip companies Nvidia, AMD and Intel, have reportedly promised to participate in the share issue with investments of 25–100 million dollars.
When the current full owner Softbank still remains Armi’s largest shareholder by far, with a share of around 90 percent, even after the share issue, the company’s owner base has quite broad shoulders.
For some investors, that might be a problem. Treasurer of the Finnish asset management company HCP Pasi Havia points out that several competing technology companies are joining Armi’s ownership base.
“With this, could Arm become some kind of controversy later, when several owners have conflicting interests towards the company?”, Havia reflects.
Another concern can be found in China, which accounts for a quarter of Armi’s turnover. Arm warns in its IPO prospectus that it is particularly vulnerable to economic and political risks related to China, which may escalate due to, among other things, tightened trade relations between China and the United States.
Even more worrying is that, according to the company, neither it nor Softbank manages the operations of Arm’s Chinese subsidiary, but it operates independently.
Major however, the question mark may be the company’s valuation. With a market value of just over 50 billion, the P/E figure, which describes the ratio of the company’s market value and profit, rises to the hundred mark, i.e. quite high.
It requires investors to have strong faith in the growth prospects of a company that already controls its main market almost completely.
The eyes of many turn to the artificial intelligence boom that was particularly hot at the beginning of the year, which has been seen especially in the demand for chips used in data centers. It’s just not Armi’s core business.
The valuation sought for the company requires strong faith from the investors participating in the listing that in the future Armi’s architecture will be increasingly used in the manufacture of chips related to artificial intelligence.
The result of the initial public offering gives a good indication of how far the wings of the artificial intelligence boom are currently flying.
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