Arm Ltd., the chip designer backed by SoftBank Group Corp., is in discussions with potential strategic investors, including Intel Corp., to secure an anchor position in what will be one of the biggest initial public offerings (IPOs) of the year, according to sources familiar with the matter.
Exploring Potential Investors
The UK-based company Arm has engaged in talks with several other companies regarding their participation in the IPO. These discussions, which involve confidential information, are still at an early stage and may not lead to a final agreement before the listing. Representatives from both Intel and Arm declined to provide any comments on the matter.
Positive Market Response
Following reports of the potential collaboration, SoftBank’s shares surged by as much as 7.7% in Tokyo on Tuesday. Similarly, Intel’s shares saw a modest increase of less than 1% on Tuesday morning in New York.
Arm’s Ambitious Goals
Arm aims to raise up to $10 billion through its IPO, which is expected to take place in New York later this year. Despite repeated appeals from UK prime ministers to lure the technology giant back to London, Arm has opted for a US listing on the Nasdaq exchange. The company recognizes the potential for higher tech valuations and a broader investor base in the United States.
Building Momentum with Anchor Investors
In an IPO, having an anchor investor can help generate interest and momentum, particularly in a challenging market for new listings. If the ongoing talks are successful, Intel would be listed as an anchor investor in Arm’s IPO prospectus.
Recent semiconductor-related IPOs have seen anchor investors purchase shares worth $100 million to $200 million. For instance, growth equity firm General Atlantic invested approximately $100 million in Intel-backed Mobileye Global Inc.’s IPO last year, while Qualcomm Inc. supported GlobalFoundries Inc.’s listing in 2021.
Intel’s Strategy and Arm’s Importance
Intel’s CEO, Pat Gelsinger, is determined to elevate the company’s position in the semiconductor industry. One of his key strategies involves opening up Intel’s factories to external firms, including its rivals. To successfully compete with Taiwan Semiconductor Manufacturing Co. in outsourced production, Intel needs to incorporate Arm’s widely-used technology into its chips.
Intel and Arm have already announced a technical collaboration. Arm’s designs and industry-standard instruction set are utilized in various products, ranging from networking chips by Broadcom Inc. to processors in Apple Inc.’s iPhones and Macs, as well as Qualcomm Inc.’s chips for mobile phones.
By considering a stake in Arm, which provides direct competition to Intel’s processors, Gelsinger aims to showcase Intel’s commitment to Arm’s technology and its openness to collaboration. Throughout its 50-year history, Intel’s plants have primarily focused on its proprietary designs.
According to Bloomberg Intelligence analyst Kunjan Sobhani, “Intel’s discussions to become a potential strategic investor in ARM’s upcoming IPO highlight the chip giant’s goal of becoming a key foundry for the fabless semiconductor sector and bringing back leading-edge manufacturing to the US. This is despite direct rivalry between Intel chips and ARM-based processors. It follows an Intel-ARM technical tie-up in April which, if combined with a strategic stake, could position Intel as a maker of chips designed on ARM architecture.”
Intel’s Battle for Market Dominance
Gelsinger has embarked on an ambitious plan to regain Intel’s dominance in the semiconductor industry. The company aims to build new plants and significantly enhance its manufacturing technology. However, Intel faces challenges as the market for its main product—personal computer processors—has declined. Additionally, Nvidia Corp. has surpassed Intel in market capitalization and dominates the artificial intelligence chip sector by leveraging its expertise in graphics processors for video games. Nvidia became the first chipmaker to achieve a valuation exceeding $1 trillion in 2020.
Arm’s Valuation and Future Outlook
SoftBank founder Masayoshi Son expressed his desire for the Arm IPO to become the largest ever by a chip company. The precise valuation of Arm has yet to be determined, but reports from Bloomberg News suggest that the company could be valued between $30 billion and $70 billion.
Arm is a prized asset within the UK’s technology industry. Its technology is integrated into a significant portion of the world’s smartphones and is widely used across the electronics sector. While Arm intends to maintain its headquarters in Cambridge, England, for now, the possibility of a secondary listing in London remains open for consideration in the future.
