NEW YORK – Arm, the chip designer owned by SoftBank Group, is getting close to securing enough investor support to attain the fully diluted valuation of US$54.5 billion (S$74 billion) in its initial public offering (IPO) and is considering asking investors to value it higher, people familiar with the matter said on Sunday.
Following strong demand from investors, Arm will likely be able to price the IPO at the top of its US$47-to-US$51-per-share range or above when its underwriters close their books on Wednesday on the biggest US stock market debut in two years, the sources said.
The company is discussing the possibility of raising the price range and seeking a valuation of more than US$54.5 billion, in the light of the IPO’s oversubscription, the sources said.
Alternatively, Arm is also considering keeping the price range as it is and pricing the IPO above it, which would lead to a valuation higher than US$54.5 billion, the sources added.
But the company will not offer more shares, given that SoftBank wants to retain a 90.6 per cent stake in it following the approximately US$5 billion IPO, as originally planned, the sources said.
A decision on whether to raise the price range will come in the next two days after some key orders from investors come in on Monday, according to one of the sources.
The sources cautioned that some anticipated investor commitments had not been finalised and the trajectory of the orders could still change.
SoftBank and Arm did not immediately respond to requests for comment.
The valuation that Arm has been seeking thus far represents a climb-down from the US$64 billion valuation at which SoftBank in August acquired the 25 per cent stake it did not already own in the company from the US$100 billion Vision Fund it manages.
Yet, even with this lower valuation, SoftBank would fare better than its US$40 billion deal to sell Arm to Nvidia, which it abandoned in 2022 amid opposition from antitrust regulators.
Arm has already signed up many of its major clients as cornerstone investors in its IPO, including Apple, Nvidia, Alphabet, Advanced Micro Devices, Intel and Samsung Electronics.
The firm launched its IPO marketing efforts last week, seeking to convince investors it has growth ahead of it, beyond the mobile phone market, which it dominates with a 99 per cent share.
Weak mobile demand during a global economic slowdown has caused its revenue to stagnate. Overall sales totalled US$2.68 billion in the 12 months to the end of March, compared with US$2.7 billion in the prior period.
Arm told potential investors in New York last Thursday that the cloud computing market, of which it has only a 10 per cent share and therefore more room to expand, is expected to grow at an annual rate of 17 per cent until 2025, partly thanks to advances in artificial intelligence. The automotive market, of which it commands 41 per cent, is forecast to expand by 16 per cent, compared with just 6 per cent growth expected for the mobile market.
Arm told investors its royalty fees, which account for most of its revenue, were accumulating since it started collecting them in the early 1990s. Royalty revenue came in at US$1.68 billion in the latest fiscal year, up from US$1.56 billion a year before.
An area of scrutiny for investors has been the firm’s exposure to China, given geopolitical tensions with America that have led to a race to secure chip supplies. Sales in China contributed 24.5 per cent of Arm’s US$2.68 billion revenue in fiscal 2023. REUTERS
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