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ARM is preparing to IPO next week, their main business is collecting license fees. Here are last year’s income statement: Revenue: $2.67B (down from 2.7) Gros

ARM is preparing to IPO next week, their main business is collecting license fees. Here are last year’s income statement: Revenue: $2.67B (down from 2.7) Gross profit margin: 96% Net Profit: $524m And they are planning to IPO at a valuation of 60-70 billion dollars! Thats a P/E of 130 and a P/S of 25. Frankly this is ridiculous for a company that collects license fees, there is no potential for massive growth, all smartphones are using ARM chips already and their biggest client has a perpetual license already. Why is it valued like a tech startup? This is Softbank dumping on retail and they somehow got Apple and Intel to buy a small piece of the IPO (700m combined).

tester756 3y ago
Do I understand ARM's business? They rely on people wanting to design their own ~~ships~~ chips So if we assume that their ecosystem is healthly and mature at this moment, then there's potential that customers wanting to design their own stuff will go to them. So until RISC-V matures, then they'll be making profits, yup? But is there growth potential? Are companies really interested in designing their own chips except a few startups that already license from them and probably google/amazon/whatever that need highly specialized chips, but already license from them? What I'm missing?
- Veserv 3y ago
  Generally speaking, ARM sells chip blueprints in return for a royalty on every chip manufactured using their blueprints (or designed to be compatible). Their growth potential is more chips being made using their blueprints or getting a higher royalty per chip manufactured.
- dkjaudyeqooe 3y ago
  > then there's potential that customers wanting to design their own stuff will go to them. There is plenty of evidence that anyone 'wanting to design their own stuff' are targeting RISC-V. Licencing ARM for that sort of thing is both costly and a pain in the arse and a distraction from actual processor development. You dismiss startups, but the ripest growth market for processors is in AI accelerators and they are predominantly RISC-V based in the startup world. RISC-V is growing fast and has a structural advantage to ARM's ISA monopoly, in that sense it is a real danger to ARM's business model.
  - edgyquant 3y ago
    > There is plenty of evidence that anyone 'wanting to design their own stuff' are targeting RISC-V. At the moment there isn’t though. Really there is basically none. The largest ecosystems making their own chips are using ARM right now, not RISCV.
    - brucehoult 3y ago
      The largest ecosystems that are deployed as production hardware right now, sure. That's because designing a high performance core takes several years, and then getting it into a chip, tested, into mass production, and in to computers in stores or data centres takes another three or four years. RISC-V has only existed as a frozen (ratified) base ISA for four years and a couple of months, and a lot of extra stuff that you want in applications processors for phones or PCs was ratified in November 2021, less than two years ago. You're not going to see a lot of products with the late 2021 stuff until 2025 or 2026. In terms of people starting projects now, or recently, that is indeed mostly RISC-V.
- DesiLurker 3y ago
  purely from investment perspective the scaling RISC-V development provides a hard cap on the how aggressive their pricing policy can be. At this point all major SoC companies have some interest/activity in RISC-V development so I doubt ARM is is in any form of monopoly position. with basically negates any significant stock growth opportunity. Given that era of cheap/easy money is done I really doubt anything good will come out for the IPO holders. this is just finding a bag-holder.
dehrmann 3y ago
> there is no potential for massive growth There is the PC business, but it's slowly dying. Seems a bit late in the game to drag it to a new architecture. Datacenters are another place ARM might see growth, but Intel and AMD already competitive there. The biggest growth area might be Nvidia's Grace Hopper, but you might as well buy (already overpriced?) NVDA. The reasons for IPOs are for investors to cash out (Saudi Aramco) or to raise money for growth (tech before ~2010). This feels like a cash-out. It's not that investors will necessarily lose money, it's that they're buying a much more mature company than they think.
dkjaudyeqooe 3y ago
The strange thing is that even if Softbank is effective at floating at this valuation (apparently by having 28 banks hawking the IPO and having a small float), there is almost no prospect of it remaining at that valuation, and Softbank is left holding the vast majority of the shares. I don't see how this doesn't end in tears. It seems to be mostly wishful thinking.
cma 3y ago
> there is no potential for massive growth, all smartphones are using ARM chips already and their biggest client has a perpetual license already. There's a war for the next platform. Meta uses ARM, while Magic Leap 2 for instance uses x64.
- Varloom 3y ago
  Meta is switching to RISC-V https://www.eenewseurope.com/en/meta-details-its-first-custom-risc-v-ai-silicon/ https://www.eenewseurope.com/en/meta-details-its-first-custo...
drawkbox 3y ago
> somehow got Apple and Intel to buy a small piece of the IPO (700m combined). Well Apple makes more sense considering M* chips are ARM based and they have signed until 2040, though that could change at some point. Intel might be using this as more a way to get "intel" so to speak. Not a bad idea to have some investment leverage. I could see ARM after going public increasing the cost of licensing and some of the larger players would be ok with that to prevent competitors. Seems like lots of leverage plays here.
weatherlight 3y ago
Seems to me they want that cash so they can start fabbing chips.
solarengineer 3y ago
They have stated a valuation of 54 Billion Dollars, are aiming to raise under 5 Billion, and their IPO has likely been over subscribed six times. https://www.reuters.com/markets/deals/softbanks-arm-ipo-currently-six-times-oversubscribed-source-2023-09-08/ https://www.reuters.com/markets/deals/softbanks-arm-ipo-curr...

tester756 3y ago

Do I understand ARM's business? They rely on people wanting to design their own ~~ships~~ chips So if we assume that their ecosystem is healthly and mature at this moment, then there's potential that customers wanting to design their own stuff will go to them. So until RISC-V matures, then they'll be making profits, yup? But is there growth potential? Are companies really interested in designing their own chips except a few startups that already license from them and probably google/amazon/whatever that need highly specialized chips, but already license from them? What I'm missing?

Veserv 3y ago
Generally speaking, ARM sells chip blueprints in return for a royalty on every chip manufactured using their blueprints (or designed to be compatible). Their growth potential is more chips being made using their blueprints or getting a higher royalty per chip manufactured.
dkjaudyeqooe 3y ago
> then there's potential that customers wanting to design their own stuff will go to them. There is plenty of evidence that anyone 'wanting to design their own stuff' are targeting RISC-V. Licencing ARM for that sort of thing is both costly and a pain in the arse and a distraction from actual processor development. You dismiss startups, but the ripest growth market for processors is in AI accelerators and they are predominantly RISC-V based in the startup world. RISC-V is growing fast and has a structural advantage to ARM's ISA monopoly, in that sense it is a real danger to ARM's business model.
- edgyquant 3y ago
  > There is plenty of evidence that anyone 'wanting to design their own stuff' are targeting RISC-V. At the moment there isn’t though. Really there is basically none. The largest ecosystems making their own chips are using ARM right now, not RISCV.
  - brucehoult 3y ago
    The largest ecosystems that are deployed as production hardware right now, sure. That's because designing a high performance core takes several years, and then getting it into a chip, tested, into mass production, and in to computers in stores or data centres takes another three or four years. RISC-V has only existed as a frozen (ratified) base ISA for four years and a couple of months, and a lot of extra stuff that you want in applications processors for phones or PCs was ratified in November 2021, less than two years ago. You're not going to see a lot of products with the late 2021 stuff until 2025 or 2026. In terms of people starting projects now, or recently, that is indeed mostly RISC-V.
DesiLurker 3y ago
purely from investment perspective the scaling RISC-V development provides a hard cap on the how aggressive their pricing policy can be. At this point all major SoC companies have some interest/activity in RISC-V development so I doubt ARM is is in any form of monopoly position. with basically negates any significant stock growth opportunity. Given that era of cheap/easy money is done I really doubt anything good will come out for the IPO holders. this is just finding a bag-holder.

dehrmann 3y ago

> there is no potential for massive growth There is the PC business, but it's slowly dying. Seems a bit late in the game to drag it to a new architecture. Datacenters are another place ARM might see growth, but Intel and AMD already competitive there. The biggest growth area might be Nvidia's Grace Hopper, but you might as well buy (already overpriced?) NVDA. The reasons for IPOs are for investors to cash out (Saudi Aramco) or to raise money for growth (tech before ~2010). This feels like a cash-out. It's not that investors will necessarily lose money, it's that they're buying a much more mature company than they think.

dkjaudyeqooe 3y ago

The strange thing is that even if Softbank is effective at floating at this valuation (apparently by having 28 banks hawking the IPO and having a small float), there is almost no prospect of it remaining at that valuation, and Softbank is left holding the vast majority of the shares. I don't see how this doesn't end in tears. It seems to be mostly wishful thinking.

cma 3y ago

> there is no potential for massive growth, all smartphones are using ARM chips already and their biggest client has a perpetual license already. There's a war for the next platform. Meta uses ARM, while Magic Leap 2 for instance uses x64.

Varloom 3y ago
Meta is switching to RISC-V https://www.eenewseurope.com/en/meta-details-its-first-custom-risc-v-ai-silicon/ https://www.eenewseurope.com/en/meta-details-its-first-custo...

drawkbox 3y ago

> somehow got Apple and Intel to buy a small piece of the IPO (700m combined). Well Apple makes more sense considering M* chips are ARM based and they have signed until 2040, though that could change at some point. Intel might be using this as more a way to get "intel" so to speak. Not a bad idea to have some investment leverage. I could see ARM after going public increasing the cost of licensing and some of the larger players would be ok with that to prevent competitors. Seems like lots of leverage plays here.

weatherlight 3y ago

Seems to me they want that cash so they can start fabbing chips.

solarengineer 3y ago

They have stated a valuation of 54 Billion Dollars, are aiming to raise under 5 Billion, and their IPO has likely been over subscribed six times. https://www.reuters.com/markets/deals/softbanks-arm-ipo-currently-six-times-oversubscribed-source-2023-09-08/ https://www.reuters.com/markets/deals/softbanks-arm-ipo-curr...