Arm Holdings, the chip designer backed by SoftBank Group, has revealed that it filed for its U.S. initial public offering (IPO). The IPO is expected to be one of the largest listings of the year.
Arm has disclosed a 1 percent drop in annual revenue attributed to a slowdown in smartphone sales. For the fiscal year ending on March 31, Arm’s revenue decreased to $2.68 billion, primarily affected by a global decline in smartphone shipments. Sales for the quarter ending on June 30 also experienced a 2.5 percent decrease, reaching $675 million.
Despite relying heavily on smartphone royalties, Arm’s relatively modest decrease in revenue suggests a potential increase in its per-chip rates. Over 50 percent of the company’s royalty revenue in the latest fiscal year came from smartphones and consumer electronics. This comes at a time when the global smartphone market is projected to reach a ten-year low, as indicated by Counterpoint Research.
As a prominent force behind the technology powering smartphones, including iPhones, Arm Holdings has not disclosed the quantity of shares it intends to offer or the sought-after valuation in its IPO. Earlier reports from Reuters suggested that SoftBank was planning to divest about 10 percent of Arm’s shares during the IPO and aimed for a valuation ranging from $60 billion to $70 billion for the chip designer.
Originally planning to raise between $8 billion and $10 billion from the IPO, Arm’s capital-raising expectations have been adjusted downwards following SoftBank’s acquisition of the remaining 25 percent stake in Arm Holdings that it did not directly own, previously held by the Saudi-backed Vision Fund. The transaction with the Vision Fund has been confirmed by SoftBank in its recent filing.
The decision to pursue an IPO was set in motion after a $40 billion deal for Arm’s acquisition by Nvidia was abandoned last year due to objections from antitrust regulators in the U.S. and Europe.
Arm generates revenue through both upfront licensing fees for its technology and royalties based on each chip sold by its customers. The company has been actively expanding its royalty revenues, noting that the latest iteration of its technology possesses the potential to drive per-device royalty opportunities even higher.
Although renowned for its chip designs dominating the smartphone industry, Arm’s technology is also integrated into laptops produced by Apple and select Windows machines. Moreover, the company has secured a 10 percent market share in the cloud computing sector, where Arm-based chips serve roles in networking and central processors within servers.
