SoftBank plans to retain controlling stake in Arm Ltd. after an initial public offering early next year, according to a report from Bloomberg. The investment bank will reportedly sell a smaller portion of shares than originally expected and attempt to sell the remainder at a higher price later.
After failing to sell Arm to Nvidia earlier this year for $40 billion, SoftBank is pursuing a valuation of at least $60 billion for the CPU and GPU technology developer. With the stock market in a slump, SoftBank is now planning to sell a smaller portion of shares than it originally intended and maintain a controlling stake in Arm, Bloomberg reported, citing people familiar with the matter. It can then turn around and sell more when market conditions improve.
SoftBank purchased Arm for $32 billion in 2016 with a plan to enter new markets, such as system-on-chips for datacenters as well as Internet-of-things devices, just to name a few. So far, Arm-based SoCs have not seized any sizeable market share in servers and market leaders Intel and AMD are accelerating their datacenter efforts and are willing to build custom server SoCs for large clients. Also, the company is facing mid-term and long-term challenges from the open-source RISC-V instruction set architecture and companies licensing RISC-V cores. Investors may see slow growth and incoming challenges as a headwind.
Another factor that affected SoftBank's decision to sell a smaller portion of Arm shares is a slump of semiconductor stocks. The Philadelphia Stock Exchange Semiconductor Index — a modified market capitalization-weighted index composed of semiconductor companies — has declined by a 24% this year, another indicator that investors are not that optimistic about chip stocks these days.
Finally, SoftBank has secured a $8 billion term loan secured by Arm shares from leading investment banks, which gives the company some additional financial flexibility, so it does not need to sell a huge portion of Arm shares in early 2023.