With Acquisition, Is SoftBank ARMed For The Future?

A couple of days ago, the internet of things (IoT) world was rocked with the announcement that the UK’s semiconductor and software design giant, ARM, was being purchased by Japan’s SoftBank in a cash deal for some $32 billion.

In the official acquisition statement, SoftBank says it intends to:

• Preserve the ARM organization, including ARM’s existing senior management team, brand, partnership-based business model and culture to ensure continuity of a strong track record
• Maintain the headquarters of ARM in Cambridge, England
• At least double the employee headcount in the UK over the next five years thereby enabling ARM to continue to develop leading-edge technology in the UK; and
• Increase the headcount of ARM outside the UK over the next five years.

These intentions sound nice, but I’m pretty certain that at least a couple of them will not be realized.

The acronym ARM was first used in 1983 and originally stood for Acorn RISC Machine. Acorn Computers’ first RISC processor was used in the original Acorn Archimedes. However, when the company was incorporated in 1990, the ARM acronym was changed to mean Advanced RISC Machines, in light of the company’s name change to Advanced RISC Machines Ltd. At the time of its IPO in 1998, the company name was changed to ARM Holdings, now often just called ARM.

ARM Doesn’t Actually Make Computer Chips, But Here’s What It Does Do

Unlike most traditional microprocessor suppliers, such as Intel, ARM only creates and licenses its technology as intellectual property (IP), rather than manufacturing and selling its own physical CPUs, GPUs, Systems on Chips (SoCs), or microcontrollers. It also supplies various design and support services to their licensees.

Along with versatility, the primary positive characteristic of ARM processors is their low electric power consumption, which makes them particularly suitable for use in all types of portable devices.

ARM-based CPU market share recently: over 95% in smartphone market; 10% in mobile computers; 35% in digital TVs and set-top boxes; however, ARM had virtually no market share in servers and desktop PCs.

As of the end of 2015, ARM had sold more than 78 billion chips with ARM cores, 15 billion of which were produced in 2015 alone.

Japanese IT company Softbank, owned by Masayoshi Son, made an agreed offer for ARM on 18 July 2016 at a price of £23.4 billion (~$32 billion). If approved, it would be Softbank’s largest overseas acquisition to date, exceeding its acquisition of Sprint in 2013 at a price of $22 billion. This is a major part of Softbank’s effort to address the burgeoning IoT market. The UK withdrawal from the European Union resulted in a fall in the value of the pound, creating an attractive opportunity for SoftBank to acquire ARM at a relatively low price in Japanese Yen. Son, however, strongly stated that the weakened pound had no impact on his decision to acquire the company.

Masayoshi Son, Chairman and CEO of SoftBank said: “We have long admired ARM as a world renowned and highly respected technology company that is by some distance the market-leader in its field. ARM will be an excellent strategic fit within the SoftBank group as we invest to capture the very significant opportunities provided by the Internet of Things. This is one of the most important acquisitions we have ever made, and I expect ARM to be a key pillar of SoftBank’s growth strategy going forward.”

Check out the interview with ARM’s Jem Davies At SIGGRAPH 2014

Stuart Chambers, Chairman of ARM said, “SoftBank has given assurances that it will maintain ARM’s unique culture and business model. ARM is an outstanding company with an exceptional track record of growth. The Board believes that by accessing all the resources that SoftBank has to offer, ARM will be able to further accelerate the use of ARM-based technology wherever computing happens.”

SoftBank’s big all-cash acquisition of ARM Holdings prompted a divergent reaction from market pundits. Some tech experts applauded the move to buy the invaluable processor IP; however, some investors were not quite so enamored with the purchase, and SoftBank shares fell by more than 10% in Japan following the news.

There is no doubt that ARM is valuable, with processors using its IP used in 85% of mobile devices, according to an estimate from the company. But is it really worth $32 billion? That remains to be seen. It’s either going to be a great move or an awful move with little room in the middle.

For SoftBank, the acquisition of ARM’s IP business may allow it to cash in on this expanding ecosystem developing in parallel to the IoT, a deal that may turn out to make the $32 billion an extremely good investment.

As far reaching as this acquisition could be, bringing it closer to the MCAD world, it will be interesting to see the reactions of some of the major IoT players, such as PTC and more recently, Autodesk. I’ll be contacting them in the near future to get their take on the SoftBank/ARM acquisition.

Tags: ARM, Internet of Things, IoT, RISC, SoftBank

This entry was posted on Thursday, July 21st, 2016 at 17:00. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.