Tech investors have had little to sink their teeth into when it comes to IPOs in 2023—but it looks like that's about to change. This week phone chip designer Arm confirmed it has taken the first step towards an initial public offering, widely touted to be the biggest of the year.
Cambridge, U.K.-based Arm has risen from an obscure parts creator to one of the most critical players in the technology industry, masterminding the semiconductors which power 99% of all smartphones in the world.
The business, owned by Japan's SoftBank, revealed it had worked with Barclays, Goldman & Sachs, JPMorgan and Mizuho Securities USA on the listing, with 24 other underwriters also noted on the filing.
In the F-1 filing submitted to the U.S. Securities and Exchange commission, Arm did not disclose the proposed terms of share sales—neither how many shares would be offered nor their valuation.
However, Bloomberg reports the company will be seeking a valuation of between $60 billion and $70 billion, and has already been in talks with some of its biggest customers about backing its Nasdaq listing.
Arm declined to comment when approached by Fortune.
Why Arm is listing
The F-1 document also hints at why Arm has chosen to list now: it is capitalizing on an ever-growing need for its products.
"Semiconductors are indispensable to everyday life," Arm wrote. "As consumers and enterprises continue to demand more from their devices, the pervasiveness of high-performance and energy-efficient semiconductors will continue to expand."
Among the trends driving growth, Arm said, is an "increasingly digital world" which in turn demands an "increased need for high-performance, power-efficient compute."
Expertise in this field is also hard to come by, the company points out, adding that design partners are playing an "increasingly valuable role" in the chip process by providing capabilities and expertise which allow for critical differentiation between products.
No valuation hints
While spectators may be sniffing for any hints about how big a wave Arm's valuation may prove to be, the company resoundingly shut down hints gleaned from the purchase price offered to parent SoftBank in a recent deal.
In August 2023, SoftBank purchased a 25% stake in Arm from venture capital fund, Vision Fund.
Both businesses are owned by SoftBank's founder Masayoshi Son, with the capital fund suffering a $32 billion loss last year.
The deal this summer saw the SoftBank behemoth purchase Vision Fund's stake in Arm for $16.1 billion, with the associated payments to be made in installments over a two-year period.
Back-of-the-envelope calculations might therefore put Arm at a valuation of $64.4 billion, an estimation Arm is keen to dismiss, writing: "The purchase price paid by SoftBank Group to acquire shares in Arm Limited from SoftBank Vision Fund may not be, and should not be treated as, indicative of the trading price of our American Depositary Shares (ADSs) following the completion of this offering."
It continues: "Investors are cautioned that the purchase price paid in respect of the Arm Limited shares may not be indicative of, and is not intended to reflect, expectations regarding the trading price of our ADSs."
A successful float could be positive for a raft of onlookers—not least SoftBank's founder Son. The billionaire has seen his net worth sink by approximately $2 billion since July according to the Bloomberg Billionaire's Index, partially prompted by the issues at Vision Fund.
A successful debut would not only bolster Son's finances but could also heat up an otherwise subdued IPO market. Shoemaker Birkenstock is reportedly toying with going public, with Bloomberg also reporting grocery delivery company Instacart is set to list in September.
The China issue
A big part of Arm's business is inevitably done in China.
It runs business in the location through an independent unit called Arm Technology Co, with neither Arm nor SoftBank controlling the business.
SoftBank owns a 48% stake in Arm China, though the rest has been purchased by local investors.
A seeming lack of control over such a business—which also saw former CEO Allen Wu refuse to relinquish his role despite being fired in May last year—presents a headache for investors, especially as Arm China accounted for 24% of Arm's revenue in the FY23.
The IPO states: "Our concentration of revenue from the People's Republic of China (PRC) market makes us particularly susceptible to economic and political risks affecting the PRC, which could be exacerbated by tensions between (on the one hand) the U.S. or the U.K. and (on the other hand) the PRC with respect to trade and national security."
"We depend on our commercial relationship with Arm China to access the PRC market," Arm continued. "If that commercial relationship no longer existed or deteriorates, our ability to compete in the PRC market could be materially and adversely affected."
The China headache is just one of many risks Arm legally had to disclose in order to list an IPO—others include inflation, another pandemic, and failure to continue investing in research and development.
Of course, Arm also won't be the only business nervously looking eastward.
Treasury Secretary Janet Yellen has said the Chinese economy's slowdown is a "risk factor" for her domestic economy, adding: “China’s slowdown will have the largest impact on its Asian neighbors, but there will be some spillovers to the United States.”
