Arm allocates shares at the upper end of the offering range

Arm boss Rene Haas attributes the strong demand for his shares to the current great interest in artificial intelligence. “Artificial intelligence will be everywhere, and everything will run (on chips) from Arm,” Haas said in a video message to potential investors. In fact, so far it has mainly been smartphones and tablet computers in which the chips designed by Arm have been installed. However, the company wants to enter the market for servers, which will benefit most from the AI ​​boom due to their high computing power.

How much does Arm stock cost?

The British chip designer’s papers are in high demand: the issue price was set at $51. This values ​​Arm at $54.5 billion.

Why is poor important?

Technology from chip designer Arm is used in more than 99 percent of all smartphones. This is what the British claim in their stock market prospectus. This is plausible, because the chip architecture from Cambridge has become established worldwide in recent years because it is energy efficient and such power-saving processors are now installed in billions of devices every year.

“They have been very successful in recent years,” says Jan-Hinnerk Mohr, chip specialist at the consulting firm BCG. The group has cleverly expanded its portfolio: “Arm now covers the entire range of processors, from very simple products for the Internet of Things to smartphones and servers.”

The business model has so far been simple: Arm supplies the blueprints for processors, the brains of cell phones and many other electrical devices. The company collects fees for this, per so-called computing core.

For some time now, Arm boss Haas has been trying to base prices on the value of the devices. The same chip in the latest iPhone earns the company significantly more than in a cheaper device. However, it is still unclear whether customers will accept this approach.

How is Poor?

The past financial year was a disappointment for Arm, as the group felt the effects of the slowdown in the smartphone market. Sales fell slightly to $2.68 billion and profits fell by around four percent to $524 million. But now things are looking up again. CEO Rene Haas promises an eleven percent increase in sales for the current financial year, which ends in March. Apparently recent price increases are paying off. According to the financial information service Bloomberg, Haas expects an annual sales increase of up to 19 percent by 2026. At the same time, the company should become significantly more profitable. According to the manager, growth drivers are currently chips for data centers and artificial intelligence applications.

What are the biggest risks for poor?

The British face three key risks:

First: heavily dependent on the smartphone market

Arm earns at least a few cents on every smartphone. But that also means: If the cell phone business shrinks as it has in recent months, this will have a negative impact on the results. And things aren’t looking good right now. According to market researchers at Counterpoint, smartphone manufacturers will only ship 1.15 billion devices this year, fewer than in a decade; this corresponds to a decrease of six percent compared to 2022.

Second: No access to the China subsidiary
Arm generates around a quarter of its sales in the People’s Republic, but has no access to its China business: it is done through Arm China, a company that is majority owned by local owners. That’s dangerous because Arm China is the company’s largest single customer. Two years ago, Arm was in a clinch with Arm China when the British fired the local boss; A long power struggle followed.

Third: Customers are looking for alternatives

Many customers feel at the mercy of poor people – and therefore try to free themselves from dependence. A handful of chip companies have just founded a joint venture that is intended to compete with Arm. The aim is to “accelerate the commercialization of future products based on the open source architecture RISC-V”. It is probably the most significant attack on Arm to date. “The industry is trying to build an alternative and thus ensure competition,” says Ondrej Burkacky, chip expert at the consulting firm McKinsey.

One of the initiators is Qualcomm, the world’s most important manufacturer of cell phone chips and a major customer of Arm. Infineon and Bosch are also there from Germany.

>>Read here: Arm’s IPO aims to usher in a renaissance of tech IPOs

Nobody yet knows whether the alternative standard will really achieve a breakthrough. But one thing seems certain: “Within the next two to five years, Arm will have to prepare for significantly more competition from RISC-V,” explains BCG expert Mohr.

Who benefits from the IPO?

First and foremost the Japanese owner Softbank. The Japanese technology investor led by Masayoshi Son bought Arm in 2016 for $32 billion. Last year, Son tried to sell the stake to Nvidia for $40 billion, but failed because of antitrust authorities in Europe and the United States. The entrepreneur then pushed forward his stock market plans.

Is it worth buying the shares now?

The stock looks “very, very expensive,” said Javier Correonero, equity analyst at Morningstar. “Everything would have to be more than perfect for them to justify this $50 billion valuation,” emphasizes the expert. Arm runs a solid business, but there is also a lot of uncertainty.

With a valuation of around $50 billion, Arm is valued at 20 times sales. This means the company is highly rated. Competitors who would grow significantly faster than Arm would only achieve 12 to 15 times the revenue.

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