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About ARM IPO (Upcoming)

$Softbank Group Corp(SFTBY)$ chip maker Arm Ltd has filed with regulators confidentially for a U.S. stock market listing. This shall be 2023 largest IPO listing.

This registration show that Softbank is still going ahead with this offering despite very challenging market condition. Stock market volatility and economic uncertainty put many IPO hopefuls off.

They are expected to raise between $8 billion and $10 billion.

Who is ARM?

ARM is a British semiconductor chip company, whose primary business is designing processors and other chips, as well as systems and platforms.

ARM does not manufacture computer processors itself but they sells licenses to other production firms.

We can viewed them as the R&D department for the entire semiconductor industry.

ARM was actually started out of a computing company called Acorn Computers in 1990.

The company was to be part of a joint venture with Apple, which would make chips for the US titan’s first handheld computer. But the venture did not work, leading Apple to sell its 43% stake in ARM.

Apple use the money from the venture to buy NeXT – the company founded by Apple’s former-CEO Steve Jobs.

Nokia started using ARM-based solutions, and by the end of the 90s, the rest of the mobile-phone manufacturing industry, including Apple also start using ARM-based solutions.

Steve Jobs started using ARM-based chip designs as the basis for the first iPod, iPhone and iPad when he returned to Apple.

ARM was bought by SoftBank in 2016 for $24 billion – a 43% premium over ARM’s share price at the time.

We can find ARM’s designs n a huge range of devices, such as tablets, computers, smart TVs, smart homes, electric vehicles, drones, electronic passports, and even automatic streetlights.

The Arm technology can be found in around 95% of the world’s smartphones – including Apple, Android and Samsung. Basically 95% of chips were designed in China.

How ARM make money

ARM collect royalties every time a company makes a chip using its design. Because of the company’s market dominance, over 160 billion chips have been made based on ARM designs as of last year.

ARM’s non-royalty revenue comes from the licenses for processor designs to other semiconductor companies.

These companies pay an up-front fee to gain access to the technology, then pay a subsequent royalty on every chip that uses one of the designs.

Arm Focus on Data Center servers and personal computers

Since the deal to sell Arm to Nvidia fell through, Arm's business has fared better than the broader chip industry. This is because of the focus on data center servers and personal computers.

These has generate higher royalty payments. Arm said its sales were up 28% in the recent quarter.

Arm Advantage into A.I. Development (Hardware and Data Center)

Traditionally, data center servers have been using $Intel(INTC)$ chips and no doubt the performance have been pretty good.

https://www.intel.com/content/www/us/en/newsroom/news/intel-foundry-arm-announce-multigeneration-collaboration-leading-edge-soc-design.html#gs.wp3ti5

There has been news about Intel collaboration with Arm with a multigeneration agreement to enable chip designers to build low-power compute system-on-chips (SoCs) on the Intel 18A process.

The collaboration will focus on mobile SoC designs first, but allows for potential design expansion into automotive, Internet of Things (IoT), data center, aerospace and government applications.

This would enable Arm existing customers to design the next generation mobile SoCs. The leading-edge Intel 18A process technology will help to boost the development.

If you noticed more advanced A.I. application currently which require more and advanced computing power could only be run on specific hardware. I believe in the near future with more advanced chip designed and manufacturer.

Advanced A.I. application could be run on mobile devices and IoT. This would be good news for automotive and the aerospace, as this could be viewed as add-on hardware to their existing hardware of any build.

ARM Project Trillium

In 2018, ARM announced Project Trillium, which encompasses Arm’s push to leverage machine learning and neural network operations across their line-up of processors – whether that processing takes place on the CPU, GPU, or its new NPU.

Machine learning is an important part of the A.I. and Arm’s goal is to make machine learning feasible “on the edge.”

The edge largely describes standalone devices such as smartphones and other mobile devices, as opposed to a centralized datacenter approach.

Moving ML workloads to the edge brings tangible benefits in the form of reduced bandwidth requirements, decreased power demands, and the associated lower costs. It also removes a significant amount of latency from the equation as data no longer needs to leave the device. Keeping data on the device can also improve reliability and security.

Neural network workloads are computationally expensive on traditional CPU and GPU architectures, however. This is not to say CPUs and GPUs are unfit for these roles in all circumstances, but many ML heavy processes stand to benefit significantly from a dedicated, purpose-built processor.

Arm’s machine learning processor is built upon a brand-new architecture for neural networks. Arm is setting its sights on mobile first, but the architecture is designed to be highly scalable, and will eventually span devices from the Internet of Things to the Datacenter.

Summary

I would monitor and look forward to this IPO as ARM has the potential to grow even bigger with more funds raised through its IPO.

As we can see from the big tech earnings forecast guidance, focus is on A.I. and some of the big tech has mentioned on building chips that support A.I.

I believe ARM would be into the design soon for A.I. emerging technologies.

Appreciate if you could share your thoughts in the comment section on what are your thoughts of ARM IPO? Will it be a boost to the A.I. technology? Advanced semiconductors is needed to really produce good hardware for A.I.

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Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.