ARM, Leading Semiconductor Company, Initiates US Nasdaq IPO Amidst Market Expectations

ARM's $64 Billion Valuation Drives Anticipation, Yet China Dependency Poses Concerns

The powerhouse semiconductor firm, ARM, acclaimed as an absolute leader in the mobile chip market, is gearing up for its debut on the US Nasdaq market through an Initial Public Offering (IPO). With a stranglehold on 90% of the smartphone chip market, this IPO by the industry titan is generating substantial market enthusiasm. However, its significant reliance on the Chinese market during an economic slowdown poses a formidable challenge.

According to the securities filing submitted by ARM to Nasdaq, the company's valuation stands at a staggering $64 billion

This valuation stems from SoftBank's recent internal dealings involving the Vision Fund and ARM stake. The assessed value is twice that of the acquisition value by the Vision Fund when it acquired ARM back in 2016. Given ARM's dominance over 90% of the global smartphone chip market, there's ample exclusive value, prompting the company to set its Price-to-Earnings Ratio (PER) at par with Nvidia's level.

SoftBank's attempt to sell ARM to Nvidia for up to $40 billion in 2021 was thwarted by regulatory opposition from various countries. Now, after a span of two years, ARM is embarking on a US stock market listing for capital recovery.

Presently, ARM's semiconductor architecture underpins all smartphones used worldwide. Notable manufacturers like Qualcomm, Apple, and Samsung Electronics base their smartphone application processors (AP) on ARM's technology. ARM's specialization in low-power design makes it an ideal foundation for smartphone APs, as well as for expanding into cloud servers and AI processors. This very characteristic led Nvidia, a powerhouse in AI semiconductors, to pursue the acquisition of ARM.

Upon listing, ARM plans to allocate stakes to key players like Apple, Samsung Electronics, Nvidia, and Intel, positioning them as long-term shareholders.

The challenge lies in the dwindling smartphone market. Research firm Counterpoint Research projects a record low of 1.15 billion units for smartphone shipments this year, the lowest in a decade. The major factor contributing to this decline is the economic slowdown in China, a significant market for smartphones. As ARM heavily relies on Chinese revenues, it must navigate the impact of the smartphone market contraction.

The company acknowledges, "We are vulnerable to political and economic risks, including tensions between the United States and China."

In fact, ARM's revenue for this year is forecasted to be $2.67 billion, a decrease from last year's $2.7 billion. The expected net profit is $524 million. In the second quarter, ARM China's revenue plunged by 16% to $139 million compared to the previous year.

The uncertainty surrounding ARM's ownership also raises concerns. The company has the capability to renegotiate intellectual property rights related to semiconductor design for Chinese smartphone manufacturers like Xiaomi and Oppo. However, in the securities filing, ARM clarified that "ARM China, the gateway to the Chinese market, operates independently from ARM and the company does not possess direct managerial control or representative authority over ARM China's board."