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The chip designer arm owned by SoftBank has begun the countdown to its biggest US initial public offering in nearly two years, releasing a preliminary prospectus for a Nasdaq listing early next month.
Arm has been the most valuable company to complete a US IPO since at least November 2021, when electric car maker Rivian listed with an initial market capitalization of $70bn.
Masayoshi Son-led SoftBank bought UK-based Arm in 2016 for $32bn. In Monday’s filing, an insider transaction earlier this month between SoftBank Group and its Vision Fund – an investment vehicle managed by the Japanese conglomerate – valued the arm at $64bn. .
The prospectus reveals that Arm depends on China for nearly a quarter of its revenue at a time when the Joe Biden administration is imposing restrictions on the operations of US semiconductor companies. Arm’s business in China is run by a local entity that neither it nor SoftBank controls.
Arm designs have a monopoly on the chips at the heart of every smartphone, with more than 99 percent market share. “We estimate that approximately 70 percent of the world’s population uses weapons-based products,” the company said in a filing, adding that chips with its technology accounted for 49 percent of the $200 billion total addressable market last year. .
However, Cambridge-headquartered Arm is returning to the public markets after a seven-year hiatus, amid the biggest decline in the smartphone market in a decade.
Arm reported revenue of $2.7 billion in the 12 months to March 31, down 1 percent year-on-year. Net profit fell 5 percent to $524 million. Arm will not receive any proceeds from the IPO, which will see SoftBank sell its stake.
The slowdown is putting pressure on Arm to tap new sources of growth by expanding into the automotive and cloud computing markets and raising the value of its intellectual property. Son is also keen to emphasize Arm’s role in the growing market for artificial intelligence.
SoftBank has been in talks with various clients and tech groups about becoming investors in the IPO, including Amazon, Intel and Nvidia, after a $66 billion bid to buy Arm, the AI-focused chipmaker, collapsed in 2022. Investors filed Monday.
Among the risk factors described in the prospectus, Arm warned that it is “particularly susceptible to economic and political risks” affecting China, the world’s largest smartphone market. The country’s royalty revenue declined last year due to economic growth and “factors related to export controls and national security matters.”
The company’s relationship with China is further complicated by Arm China’s unique ownership structure, which holds exclusive rights to sublicense its intellectual property to Chinese clients such as Alibaba and Xiaomi.
Although Arm described Arm China as having “remarkable credibility”, the UK group transferred ownership of the unit to a SoftBank conglomerate last year, leaving it with an indirect ownership of 4.8 percent, according to the prospectus.
However, Chinese government records show that the British group is almost half Chinese-owned. Chinese authorities have blocked the registration of the stock transfer because they want to directly involve the weapon in the Chinese joint venture, the FT previously reported.
Former Arm China chief Alan Wu spent two years fighting efforts to oust him until he was ousted by Shenzhen authorities last year.
Elsewhere, Arm also noted that it had identified a “material weakness” in controls over the IT systems used to prepare its financial statements. It said it had introduced a number of measures to address the problem in the last financial year, but gave no guarantee when they would be fully fixed.
A long-time investor in SoftBank said the Japanese group’s ability to list the arm at a valuation of more than $60bn in a tough market would help the process restore confidence in Son’s powers as a major technology investor.
Arm’s large size and previous history as a public company mean it is considered less risky than many traditional IPO candidates, although the deal is being closely watched as a test of the strength of the US IPO market after an 18-month drought.
Goldman Sachs, Barclays, JPMorgan Chase and Mizuho are the lead advisors on the offering along with 24 other banks.
Monday’s filing allows Arm to begin its IPO roadshow after markets reopen after the Labor Day holiday in early September. Arm filed a confidential preliminary prospectus with the Securities and Exchange Commission earlier this year, but companies must make their documents public at least 15 days before the formal share sale process begins.
Arm chief executive Rene Haas is in line to receive a $20mn cash award and a $20mn stock award following the IPO.