Arm touts cloud computing expansion, paying royalties to IPO investors

NEW YORK, Sept 7 (Reuters) – SoftBank Group (9984.T) Arm Holdings Plc on Thursday told potential investors in an initial public offering worth about 5 billion USD that cloud computing expansion and licensing revenue represent key growth areas for the chip designer.

In a meeting that brought together more than 100 investors at one of New York’s most luxurious hotels, Arm CEO Rene Haas and his management team offered insight into the company’s prospects. in addition to the mobile phone market, a market in which the company has a 99% market share. were all present.

Weak mobile demand during the global economic downturn has caused Arm’s revenue to stagnate. Revenue totaled $2.68 billion in the 12 months to the end of March, compared with $2.7 billion in the prior period.

Arm is seeking a valuation on a fully diluted basis of between $50 billion and $54.5 billion, less than the $64 billion SoftBank assigned it in a deal last month with the $100 billion Vision Fund. USD they manage.

While some investors and bankers Reuters spoke to after the presentation were optimistic, it’s unclear how strong reception the IPO will be. Arm has secured the participation of several customers, including Apple Inc (AAPL.O), Nvidia Corp (NVDA.O) and Alphabet Inc (GOOGL.O), as investors in the IPO. The offering is expected to close and price on September 13.

Arm told potential investors on Thursday that the cloud computing market, in which it has just a 10% share and therefore has plenty of room to expand, is expected to grow at a rapid pace. 17% annually through 2025, thanks in part to advances in artificial intelligence. The automotive market, which accounts for 41% of the market, is forecast to grow 16%, compared with only 6% expected growth for the mobile market.

“They say Apple uses 100% Arm architecture (because of Arm’s dominance in smartphones). Future growth driver is expanding market share in the Windows PC market,” Ryuta Makino, research analyst at Gabelli Funds, said.

Arm also told investors that royalty fees, which make up the majority of its revenue, have been accumulating since it started collecting them in the early 1990s. Royalty revenue reached $1.68 billion in the latest fiscal year, up from $1.56 billion from a year ago.

One area investors are looking closely at is Arm’s exposure to China, as geopolitical tensions with the United States have led to a race to secure chip supplies. Sales in China contributed 24.5% to Arm’s $2.68 billion revenue in fiscal 2023.

Almost all of that revenue comes from Arm China, an independent entity that has exclusive rights to distribute Arm technology in the country and is Arm’s largest customer. ARM China has a history of slow payments and poses “significant risks” to Arm’s business, the company’s IPO filing said.

Arm said in the filing that it owed Arm China $386.9 million as of the end of March. Arm’s chief financial officer told investors during the marketing of the IPO that the company was not worried about return of capital.

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