For SoftBank’s Masayoshi Son, Arm’s list and how much it can do is more important than ever. Ballooning investment losses at the Japanese tech investment group mean the float of portfolio company Arm offers a vital source of funding – and redemption for Son after several failed investments. But the execution risk is growing.
Beijing is perhaps the only other party interested in the future of UK-based chip designer Son. A lot has changed in the months since Son supported the Arm list in the US. A US chip export ban issued in October means it has become increasingly difficult for Chinese companies, such as e-commerce giant Alibaba, to source advanced chips and designs. It applies to Arm’s most advanced designs, used in the latest mobile devices and data centers around the world.
China has made some progress with its homegrown semiconductor design. The number of Chinese chip design companies using Risc-V open source architecture has grown rapidly. Local tech giants including Alibaba and Tencent have invested in processors that could replace Arm’s design.
But now, Arm’s chip architecture dominates mobile devices in China. This may explain why China is delaying Arm’s plans to divest local joint ventures. Since May last year, Chinese officials have refused to process documents confirming the transfer of Arm China to SoftBank’s new Vision Fund entity.
The unit contributes a lot of revenue to Arm. Sales growth in China has been strong, more than a third of last year, despite slow exports and a drop in local demand for consumer devices amid tight lockdowns. Losing this income, which once accounted for about one-fifth of total sales, will reduce Arm’s value.
Regardless of the political problem, delays further create uncertainty at the time of listing, which Son can not afford. SoftBank reported an investment loss of $5.4bn in the December quarter. Its share price has fallen by a tenth in the past month.
SoftBank acquired Arm for $32bn in 2016. Now, as the chip industry is in decline, even with strong sales from the Chinese unit, Arm will earn less than $34bn when it is valued at many industry averages. SoftBank reportedly expected a valuation of at least $60bn for Arm last year. Sons and investors hoping to list Arm should lower their expectations drastically.