SoftBank’s Arm unveils plans for its largest initial public offering in the US in nearly two years

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SoftBank-owned chip designer Arm has begun the countdown to the largest initial public offering in the United States in nearly two years, as it unveiled a prospectus for a Nasdaq listing scheduled for early next month.

Arm is on track to be the most valuable company to complete an IPO in the US since at least November 2021, when electric car maker Rivian listed with an initial market capitalization of $70 billion.

SoftBank, led by Masayoshi Son, acquired UK-based Arm for $32 billion in 2016. Monday’s filing confirmed that an insider deal earlier this month between SoftBank Group and the Vision Fund — an investment vehicle run by the Japanese conglomerate — valued Arm With 64 billion dollars.

The prospectus reveals that Arm relies on China for about a quarter of its revenue, just as the Joe Biden administration is ratcheting up restrictions on the activities of US semiconductor companies there. Arm’s business in China is run by a local company that neither it nor SoftBank controls.

Arm designs have a near-monopoly on the chips at the heart of every smartphone, with more than 99 percent market share. “We estimate that approximately 70 percent of the world’s population uses ARM-based products,” the company said in the filing, adding that the chips containing its technology have a 49 percent share of the total addressable market worth just over $200 billion last year. the past .

However, Cambridge-based Arm is returning to the public markets after a seven-year absence just as the smartphone market is experiencing its biggest downturn in a decade.

Arm reported $2.7 billion in revenue in the 12 months through March 31, down 1 percent year-on-year, according to the prospectus. Net profit fell 5 percent to $524 million. Arm itself will receive no proceeds from the IPO, necessitating that SoftBank sell its stake.

The slowdown is pressuring Arm to tap new sources of growth by expanding into automotive and cloud computing markets and increasing the value of its intellectual property. Son was also keen to stress Arm’s role in the burgeoning market for artificial intelligence.

SoftBank has been in talks with several clients and technology groups about becoming investors in the IPO, including Amazon, Intel and Nvidia, the AI-focused chip maker whose $66 billion bid to buy Arm in 2022 collapsed. It provided no information. Additional about potential cornerstone investors filing on Monday.

Among the risk factors detailed in the prospectus, Arm warned that it is “particularly exposed to economic and political risks” affecting China, the world’s largest smartphone market. Equity revenues from that country fell last year due to a combination of slowing economic growth and “factors related to export control and national security issues.”

The company’s relationship with China is further complicated by Arm China’s proprietary ownership structure, which holds exclusive rights to license its intellectual property to Chinese clients such as Alibaba and Xiaomi.

The prospectus said that despite what it describes as a “significant reliance” on Arm China, Arm has no direct management rights in the company and holds only a 4.8 percent indirect ownership stake in the entity, which is majority owned by Chinese investors. Subsidiary SoftBank, in which Arm holds a 10 percent stake, owns 48 percent of Arm China.

Former Arm China boss Allen Wu spent two years resisting attempts to oust him until Shenzhen officials forced him out last year.

Elsewhere in the filing, Arm also noted that it had identified a “material weakness” in the controls over the information technology systems used to prepare its financial statements. It said it introduced several measures to address the problem over the past fiscal year, but gave no guarantees about when it will be fully fixed.

A long-term investor in SoftBank said the Japanese group’s ability to list Arm at a valuation of more than $60 billion in a tough market likely serves the function of restoring confidence in Son’s powers as a major tech investor.

Arm’s sheer size and past history as a public company means it’s considered less risky than many traditional IPO candidates, but the deal is nonetheless being watched closely as a test of the strength of the US IPO market after an 18-month drought.

Goldman Sachs, Barclays, JPMorgan Chase and Mizuho are the lead advisors on the offering, along with 24 other banks.

Monday’s filing allows Arm to begin its IPO roadshow after markets reopen after the Labor Day holiday in early September. Arm filed a classified prospectus with the Securities and Exchange Commission earlier this year, but companies are required to release their documents at least 15 days before the official stock sale begins.

Arm CEO Rene Haas is poised to receive a $20 million cash prize upon completion of the IPO, as well as a $20 million equity award.