SK Hynix Mulling Arm Purchase as It Revs Up Its Foundry Business

SK Hynix is reviewing whether or not it should acquire Arm together with strategic partners, the company said at an annual shareholder meeting. The idea is at a very early stage of development, so it is unclear whether SK Hynix could manage to pull this off before Am makes its initial public offering (IPO). Meanwhile, Arm itself is looking forward to sell off its Arm China shares to speed up its IPO. 

"We are reviewing possibly forming a consortium, together with strategic partners, to jointly acquire [Arm]," said Park Jung-ho, vice chairman and CEO of SK hynix, reports Yonhap news agency. " I don't believe Arm is a company that could be bought by one company." 

Arm is an extremely important company as it develops general-purpose CPUs and GPUs for smartphones, tablets, PCs, and a host of other devices. SK Hynix sells boatloads of DRAM and NAND memory for mobile electronics, so Arm is strategically important for the South Korean company. Indeed, SK Square, an investment spinoff of SK Telecom that is also headed by Park Jung-ho, is looking forward to controlling Arm. 

"I want to buy Arm, if not entirely," said the chief executive of SK Hynix. "It doesn't have to be buying a majority of its shares to be able to control the company." 

While selling memory for Arm-based platforms is important for SK Hynix, there might be another reason why SK Hynix is interested in Arm: For years, SK Hynix has been trying to revive its foundry business as making logic chips for others is more profitable than making commodity products like 3D NAND or DRAM.

Earlier this week, the South Korean antitrust regulators approved SK Hynix's acquisition of local chipmaker Key Foundry, which will be another step in making SK Hynix a contract chipmaker. Yet the company is not going to stop there. There is a plan to establish a presence in Silicon Valley to build ties with fabless chip designers. With Arm under its control, it will be much easier for SK Hynix to do so. 

"We will build an R&D center in Silicon Valley and use it as a key base to enhance partnership with big tech companies and improve competitiveness," said Park Jung-ho. 

SK Hynix is one of the companies that tend to participate in consortiums buying important assets. For example, the company owns a stake in Kioxia, which is its rival. Yet, when it comes to technology development, the company does not collaborate with Kioxia outside of JEDEC and other industry organizations. Therefore, with Kioxia, SK Hynix is looking at earning on its investments rather than seeking strategic gains from its investments. With Arm, the idea seems a bit different. 

Softbank, the current owner of Arm, plans to float Arm on the stock market by next year. There is a problem, though: Arm does not fully control its Arm China unit (it owns a 47.33% stake), which contributes to about one-quarter of its sales. Since Arm China doesn't disclose its financial results to the parent company, it is impossible to disclose them to potential Arm investors, hampering the IPO. Apparently, to make things faster Arm is now looking to transfer its Arm China stake to SoftBank and go public without one of its key business units, reports Financial Times citing two sources with knowledge of the matter.

It is noteworthy that Arm China wants to go public itself a few years from now. If Arm Ltd. transfers its Arm China stake to SoftBank, it will be much easier for Arm China to float on the stock market in 2026 or later. Yet once shares of Arm China become available on an open market, SoftBank or Arm itself could buy them and regain control of the rogue business unit.