Experts Tim Bradshaw and James Ashton discuss Arm's upcoming IPO, its growth opportunities beyond smartphones, and its position in the AI market. They also speculate on the potential performance of its shares and the impact on the company's staff.
ARM needs to diversify its revenue streams by exploring growth opportunities in areas such as automotive and data centers to counter the plateau in the smartphone industry.
SoftBank aims to take ARM public to generate proceeds, but the IPO faces uncertainties and risks, including legal disputes and the influence of ARM's relationship with Apple.
Deep dives
ARM's Importance in the Semiconductor Chip Industry
ARM, a British semiconductor chip designer, has played a significant role in the semiconductor chip industry over the last several decades. They have become the architect and provider of instruction set architecture for chips used by major tech companies like Apple, Qualcomm, and Google. With a dominating market share in smartphone chips (99%), ARM aims to explore growth opportunities in advanced devices, such as 5G-enabled smartphones and mobile gaming. Additionally, ARM's power-efficient chip design is gaining traction in data centers, automotive industries, and AI systems where low power consumption is crucial.
Financial Challenges for ARM in the Smartphone Market
Although ARM enjoys a substantial market share in smartphone chips, the smartphone market itself is not currently experiencing significant growth. This poses challenges for ARM's growth story and financial health as their revenues remain flat and profits have decreased. With smartphone chips being their main revenue source, ARM needs to focus on diversifying its revenue streams by exploring growth opportunities in other areas such as automotive and data centers. While there is potential for growth in these markets, ARM faces the task of convincing investors of future profitability amidst the current plateau in the smartphone industry.
ARM's Listing and SoftBank's Strategy
SoftBank, the current owner of ARM, aims to take ARM public to generate proceeds and bolster its own financial position. The IPO provides an opportunity for SoftBank to sell down its stake in ARM, making it a more liquid asset that can be borrowed against more easily. SoftBank's need to raise capital and generate a hit in the market drives the timing of ARM's listing. However, ARM's listing also faces uncertainties, including legal disputes with Qualcomm over license breaches and potential risks associated with its exposure to China. ARM's relationship with Apple, one of its major customers, also influences the dynamics of its business model and profitability.
ARM's Role in Artificial Intelligence and Future Prospects
While ARM is positioning itself within the artificial intelligence (AI) market, its expertise lies primarily in CPUs (central processing units), which are different from the GPUs (graphics processing units) that excel in AI applications. ARM acknowledges that it has a role to play in certain areas of AI, such as autonomous car systems and sensing technologies, rather than in the large language models and chat GPT (generative pre-trained transformer) systems that currently receive significant hype. ARM's ability to capitalize on the AI market may not match the growth potential of its dominance in smartphone chips. However, ARM's power-efficient chip design and its integration with supercomputers, such as Nvidia's Grace Hopper, present opportunities for growth and energy efficiency advancements beyond the smartphone market.
This week, we have a bonus episode for you, live from the FT Weekend Festival in London. Michela sat down with two experts on Arm, the British chip designer, to discuss its imminent initial public offering. Tim Bradshaw, the FT’s global tech correspondent and James Ashton, author of The Everything Blueprint, talk about where Arm stands as a company, and what its chances for growth are when it goes public later this month. This conversation was recorded on September 2, 2023.
