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Only two weeks ago SoftBank / Arm / Nvidia made a submission to the UK competition authorities with a singularly pessimistic view of Arm’s prospects as a stand-

Only two weeks ago SoftBank / Arm / Nvidia made a submission to the UK competition authorities with a singularly pessimistic view of Arm’s prospects as a stand-alone company [1]. I wonder if this was wise given the where the deal seems to be now. Whilst this is a bit overdone, it does highlight the challenges that Arm faces. If the Nvidia deal is dead - which seems likely - then floating clearly seems unlikely to offer the prospect of the return that SoftBank was expecting when it paid a premium for Arm. The key question from an Arm user / customer’s perspective seems to be ‘Can Arm as a stand-alone company finance the investment it meets to stay competitive?’ [1] https://assets.publishing.service.gov.uk/media/61d81a458fa8f505953f4ed7/NVIDIA-Arm_-_CMA_Initial_Submission_-_NCV_for_publication__Revised_23_December_2021_.pdf https://assets.publishing.service.gov.uk/media/61d81a458fa8f...

varelse 5y ago
Likely Qualcomm bales them out as they have offered to do so and eventually takes them over quietly by osmosis so no one notices until the deal is done. https://www.barrons.com/articles/qualcomm-offers-to-rescue-arm-if-regulators-block-nvidias-40-billion-bid-51623704676 https://www.barrons.com/articles/qualcomm-offers-to-rescue-a...
310260 5y ago
From that document: > As Arm’s CEO, Simon Segars, explained: “We contemplated an IPO but determined > that the pressure to deliver short-term revenue growth and profitability would > suffocate our ability to invest, expand, move fast and innovate.” It sounds like Arm needs a change in leadership to me. Find the capital for long-term investment somewhere and follow a path to improvement like AMD did. Yes, there is pressure to deliver short term profit as there always is today. However, that's not a strategy that works for a company like Arm. Everyone around the world can see the value in what Arm produces. Find someone to invest who isn't a hedge fund manager and still sees that value.
- michelb 5y ago
  Doesn't Softbank need their money back? ARM most likely has to IPO whether they like it or not, right?
- nemothekid 5y ago
  >Find the capital for long-term investment somewhere and follow a path to improvement like AMD did. They did, it was called SoftBank and now SoftBank needs its money back. The comparison to AMD isn’t comparable; AMD already had a high margin business in a proven market; it’s unclear what ARM is going to be pressured to do; either they will have to put the screws on their licensors or start making their own chips (which would be no different from the concern under nvidia)
  - screenbreakout 5y ago
    Is it possible Softbank would sell it to the Chinese and what would the consequences be? a bidding war?
    - jbjbjbjb 5y ago
      I doubt that would be more palatable for the UK government
    - pkaye 5y ago
      The ARM China venture has gone rogue anyway. It already has exclusive access to ARM IP within China. https://semianalysis.com/the-semiconductor-heist-of-the-century-arm-china-has-gone-completely-rogue-operating-as-an-independent-company-with-their-own-ip/ https://semianalysis.com/the-semiconductor-heist-of-the-cent...
- neolefty 5y ago
  Is this about market fundamentals? One way to think about ARM is as a vehicle for R&D, shared amongs competitors such as Apple, Qualcomm, Samsung, and Huawei. * Do they each benefit from the R&D done by ARM? * Is that benefit enough to be worth the cost, even shared amongst the recipients? * Can they "agree" on an arrangement, and can ARM function well enough to stay healthy?
- monocasa 5y ago
  That argument made negative sense to me. 'Don't IPO because public companies are inherently limited to short term growth, therefore we have to be bought by an already public company?'
  - ryan_j_naughton 5y ago
    It is very different to be a subsidiary of a public company than to be public yourself. Take Waymo vs Alphabet. If you are the public company, you need to have your unit economics working such that you generate short term profits. You can lose money in a subsidiary so long as it is small by comparison to your overall P&L (Waymo losses of a few billion over several years vs Google annual revenue is over $160B and profit over $34B). If on the other hand, Waymo were its own public company (and not a subsidiary), then it would need to show results on its own. Don't get me wrong: being a subsidiary of a public company is still worse than say being a private company with a massive warchest or being the subsidiary of a private company with strong cashflow / cash reserves.
    - monocasa 5y ago
      I'm not sure that's the case. The markets aren't very keen on missing profit goals, but are very understanding of intentionally not being profitable while you use revenue to invest hard in the business. For instance Amazon has famously not had a focus on yearly profits and regularly has negative profit. The markets are more than accepting of this because they continue to grow and it's information that the market had ahead of time rather than being an excuse for missed goals. The markets more want you to be honest in your 10-k and S-1 than strictly require short term profits.
- klelatti 5y ago
  We have to distinguish between value created in the Arm ecosystem (a lot) and how much Arm retains (much less). Nonetheless Arm seemed to do OK as a public company for 25 years but Son thought he saw an opportunity and paid a big premium for it. I do think there is an issue around Arm as a relatively small player competing for talent with Apple, Intel etc which feels suboptimal for the industry as a whole. Perhaps eg the cloud hyperscalers could jointly and directly fund development of server chips in the same way that firms prepay TSMC for capacity.
  - cinntaile 5y ago
    > Nonetheless Arm seemed to do OK as a public company for 25 years but Son thought he saw an opportunity and paid a big premium for it. Softbank tends to have a habit of overpaying. Maybe they just have more access to capital than available opportunities they can intelligently spend money on.
    - roughly 5y ago
      The sentiment around the time of the WeWork collapse was SoftBank was generally considered the dumbest money in the room.
- johnmarcus 5y ago
  are we pretending that they didn't say that exclusively in hopes the deal would go through? They will turn around that statement on a dime and not a single investor will blink with "...but you said to the regulators...". No risk in making such a silly statement. They probably will get a change of leadership though. Often they chose the best-man-for-the-merger, and when it doesn't work out, they then actually search for the best-person-for-the-job.
karmasimida 5y ago
> SoftBank / Arm / Nvidia made a submission to the UK competition authorities with a singularly pessimistic view of Arm’s prospects as a stand-alone company They apparently want to sell the company and benefit from it together ... so it this surprising?
- klelatti 5y ago
  Surprising when it seems clear it will be blocked and they will have to float Arm!

varelse 5y ago

Likely Qualcomm bales them out as they have offered to do so and eventually takes them over quietly by osmosis so no one notices until the deal is done. https://www.barrons.com/articles/qualcomm-offers-to-rescue-arm-if-regulators-block-nvidias-40-billion-bid-51623704676 https://www.barrons.com/articles/qualcomm-offers-to-rescue-a...

310260 5y ago

From that document: > As Arm’s CEO, Simon Segars, explained: “We contemplated an IPO but determined > that the pressure to deliver short-term revenue growth and profitability would > suffocate our ability to invest, expand, move fast and innovate.” It sounds like Arm needs a change in leadership to me. Find the capital for long-term investment somewhere and follow a path to improvement like AMD did. Yes, there is pressure to deliver short term profit as there always is today. However, that's not a strategy that works for a company like Arm. Everyone around the world can see the value in what Arm produces. Find someone to invest who isn't a hedge fund manager and still sees that value.

michelb 5y ago
Doesn't Softbank need their money back? ARM most likely has to IPO whether they like it or not, right?
nemothekid 5y ago
>Find the capital for long-term investment somewhere and follow a path to improvement like AMD did. They did, it was called SoftBank and now SoftBank needs its money back. The comparison to AMD isn’t comparable; AMD already had a high margin business in a proven market; it’s unclear what ARM is going to be pressured to do; either they will have to put the screws on their licensors or start making their own chips (which would be no different from the concern under nvidia)
- screenbreakout 5y ago
  Is it possible Softbank would sell it to the Chinese and what would the consequences be? a bidding war?
  - jbjbjbjb 5y ago
    I doubt that would be more palatable for the UK government
  - pkaye 5y ago
    The ARM China venture has gone rogue anyway. It already has exclusive access to ARM IP within China. https://semianalysis.com/the-semiconductor-heist-of-the-century-arm-china-has-gone-completely-rogue-operating-as-an-independent-company-with-their-own-ip/ https://semianalysis.com/the-semiconductor-heist-of-the-cent...
neolefty 5y ago
Is this about market fundamentals? One way to think about ARM is as a vehicle for R&D, shared amongs competitors such as Apple, Qualcomm, Samsung, and Huawei. * Do they each benefit from the R&D done by ARM? * Is that benefit enough to be worth the cost, even shared amongst the recipients? * Can they "agree" on an arrangement, and can ARM function well enough to stay healthy?
monocasa 5y ago
That argument made negative sense to me. 'Don't IPO because public companies are inherently limited to short term growth, therefore we have to be bought by an already public company?'
- ryan_j_naughton 5y ago
  It is very different to be a subsidiary of a public company than to be public yourself. Take Waymo vs Alphabet. If you are the public company, you need to have your unit economics working such that you generate short term profits. You can lose money in a subsidiary so long as it is small by comparison to your overall P&L (Waymo losses of a few billion over several years vs Google annual revenue is over $160B and profit over $34B). If on the other hand, Waymo were its own public company (and not a subsidiary), then it would need to show results on its own. Don't get me wrong: being a subsidiary of a public company is still worse than say being a private company with a massive warchest or being the subsidiary of a private company with strong cashflow / cash reserves.
  - monocasa 5y ago
    I'm not sure that's the case. The markets aren't very keen on missing profit goals, but are very understanding of intentionally not being profitable while you use revenue to invest hard in the business. For instance Amazon has famously not had a focus on yearly profits and regularly has negative profit. The markets are more than accepting of this because they continue to grow and it's information that the market had ahead of time rather than being an excuse for missed goals. The markets more want you to be honest in your 10-k and S-1 than strictly require short term profits.
klelatti 5y ago
We have to distinguish between value created in the Arm ecosystem (a lot) and how much Arm retains (much less). Nonetheless Arm seemed to do OK as a public company for 25 years but Son thought he saw an opportunity and paid a big premium for it. I do think there is an issue around Arm as a relatively small player competing for talent with Apple, Intel etc which feels suboptimal for the industry as a whole. Perhaps eg the cloud hyperscalers could jointly and directly fund development of server chips in the same way that firms prepay TSMC for capacity.
- cinntaile 5y ago
  > Nonetheless Arm seemed to do OK as a public company for 25 years but Son thought he saw an opportunity and paid a big premium for it. Softbank tends to have a habit of overpaying. Maybe they just have more access to capital than available opportunities they can intelligently spend money on.
  - roughly 5y ago
    The sentiment around the time of the WeWork collapse was SoftBank was generally considered the dumbest money in the room.
johnmarcus 5y ago
are we pretending that they didn't say that exclusively in hopes the deal would go through? They will turn around that statement on a dime and not a single investor will blink with "...but you said to the regulators...". No risk in making such a silly statement. They probably will get a change of leadership though. Often they chose the best-man-for-the-merger, and when it doesn't work out, they then actually search for the best-person-for-the-job.

karmasimida 5y ago

> SoftBank / Arm / Nvidia made a submission to the UK competition authorities with a singularly pessimistic view of Arm’s prospects as a stand-alone company They apparently want to sell the company and benefit from it together ... so it this surprising?

klelatti 5y ago
Surprising when it seems clear it will be blocked and they will have to float Arm!