SoftBank Group Corp.’s founder and CEO Masayoshi Son has been looking for a comeback after his tech investing record suffered a series of setbacks in recent years. His latest bet is on Arm Holdings Plc, the British chip designer that SoftBank acquired in 2016 for $32 billion. On Thursday, Arm made its debut on Nasdaq, raising $4.87 billion in the biggest US IPO of the year and giving the company a valuation of $65 billion.
Arm’s IPO: A Drama-Free Success
Arm’s IPO was a drama-free success, as the shares opened at $56.10 apiece, compared with the initial public offering price of $51, and surged 25% to close at $63.59 on the first day of trading. The IPO was 12 times oversubscribed, signaling robust demand from investors who are bullish on Arm’s prospects in the chip industry.
Arm is a leading provider of chip technology that is used in 99% of the world’s smartphones, as well as in computers, smart TVs, and other devices. Arm does not manufacture chips itself, but licenses its designs and intellectual property to other companies, such as Apple, Samsung, Nvidia, and Qualcomm. Arm also plans to incorporate artificial intelligence technologies into its chip designs, which could open up new growth opportunities in the future.
SoftBank still owns about 90% of Arm after the IPO, and its stake was worth about $12 billion more by the end of the day thanks to the share price gain. SoftBank also has the option to sell another 9.55 million shares within 30 days if there is enough demand.
Son’s Strategy: Playing It Safe
Son’s strategy for Arm’s IPO was to play it safe and avoid any last-minute hiccups or pushback on the valuation. He did not appoint a lead underwriter for the IPO, and let Arm’s CEO Rene Haas and CFO Jason Child do most of the talking with investors on the roadshow. Son himself got involved in the pricing negotiations on Wednesday afternoon, and signaled that he did not want to ask for too high a price even if it meant leaving some money on the table.
This was an unconventional choice given that Son is known for his flamboyant and ambitious style of investing. He likes to say that he invests with a 300-year time horizon and has a vision of an AI future. He also launched his tech-focused Vision Fund in 2017 with $100 billion in funding from others, including Saudi Arabia.
However, Son’s reputation as an investor took a hit after some of his bets turned sour in recent years. He lost $4.6 billion on office-sharing firm WeWork in 2019, and another $10 billion on ride-hailing firm Uber and hotel-booking platform Oyo Rooms in 2020. His Vision Fund also reported a record loss of $32 billion in the fiscal year ended March 2021.
Son needed a win after these losses, and he got one with Arm’s IPO. He also showed that he can be flexible and pragmatic when it comes to his investments. He may have left some money on the table by pricing Arm’s shares conservatively, but he also ensured that the IPO would go smoothly and generate positive sentiment for both Arm and SoftBank.
What’s Next for SoftBank and Arm?
The successful IPO of Arm sets the stage for more deals and acquisitions for both SoftBank and Arm. SoftBank has been selling some of its assets to raise cash for its $41 billion share buyback and debt reduction plan. It has also been looking for new opportunities to invest in startups and emerging technologies. In July, SoftBank announced that it would launch a second Vision Fund with $30 billion of its own capital.
Arm, on the other hand, may face some challenges as it competes with other chip makers and faces regulatory scrutiny over its proposed merger with Nvidia Corp., which was announced last year. The deal, valued at $40 billion, is still pending approval from authorities in the US, UK, China, and other countries. Some of Arm’s customers and rivals have expressed concerns that the deal would give Nvidia too much control over Arm’s technology and stifle innovation and competition in the chip industry.
Arm’s CEO Haas has said that he is confident that the deal will be approved eventually, and that it would benefit both companies and their customers. He has also said that Arm will remain independent and neutral after the merger, and that it will continue to license its technology to anyone who wants it.