What to look forward to: Rumor has it that Qualcomm, among other things, wants to buy Arm. After an unsuccessful saga Nvidia trying to buy Arm seems next to impossible for any other company to get through the regulatory gauntlet. For its part, Arm isn’t very enthusiastic about going public later this year or next, but it doesn’t seem to have any other options. That being said, there is one scenario that could close the circle – a consortium of large Arm licensees could buy Arm. This could potentially include Qualcomm, Mediatek, Nvidia, Broadcom, AMD, Tsinghua Unisoc, and more.
Theoretically, this will solve all problems. Softbank could get a way out of its investment, which it has repeatedly signaled it is seeking to get. Arm’s executives could remain free from control of the public markets and theoretically fund their strategic plans, whatever they may be. And Arm licensees can rest assured that Arm is moving forward on its much-needed roadmap, not allowing a competitor to dominate that roadmap to the detriment of everyone else.
Guest Author Jonathan Goldberg is the founder of D2D Advisory, a multifunctional consulting firm. Jonathan has developed growth strategies and alliances for mobile, networking, gaming and software companies.
However, from a practical point of view, everything is much simpler. The first concern will be in what structure the company will exist. Softbank wants to leave, and no one else wants to consolidate Arm in their own financial affairs, so the company will have to become some kind of separate private entity. This is probably due to the invitation of a private investor. This would bring the added benefit of having a “neutral” party as the leading voice on the Board. But any such investor will be primarily motivated by financial returns, and not by the strategic needs of all the other members of the consortium.
As with any scenario, it is unclear how or if Arm will get the capital gains it has repeatedly stated it needs, private capital is not known for investment in R&D. So eventually Arm will have to go public at some point, but maybe that path will give them a lot more time to prepare for that.
The second problem can best be described as “how to gather a pack of cats.” This list of potential participants is very diverse, with a wide range of competing interests. Each of them will participate on the principle of protecting their individual strategic interests and thus presumably want to have some influence over the company. This goes against the idea that the new company is independent.
This is not an insurmountable barrier, but it does mean that agreeing on all incentives will require very difficult negotiations. Ultimately, the devil will be in the details here – how the various blocs align and who ends up getting the deciding vote, which leads to huge influence down the road.
Another important question is what this will mean for everyone else. We have written extensively about the conflict inherent in Arm’s current pricing regime, which penalizes new entrants in favor of large established customers. If these big clients end up gaining control of Arm, then the only thing they can all agree on is to further entrench this conflict. This is of great importance for the long-term prospects of the company, whose interests will the new owners vote for?
And finally, the question of China. In our opinion, the Chinese government will be ready to sign the deal if Chinese companies take part in the consortium. We have added Tsinghua Unisoc to our list above as they are the most likely candidates, but there are others.
Can Huawei’s HiSilicon join? They were once one of the leading gun licensees and are showing signs of a resurgence from the US government’s bans against them. Will they be allowed to participate? And after the resolution of the soap opera Arm China, Arm was in tears, signing many deals, how will all these companies react to some new group of American owners?
Ultimately, we suspect that the repetition of these rumors means that someone, somewhere is negotiating such a deal. The Arm bankers should at least consider this idea as an alternative to an IPO. So, of course, the question will most likely eventually come down to evaluation.
The public markets have already given pretty clear price signals. Armed Forces IPO, and that’s well below the $40 billion offered by Nvidia. Is the consortium ready to pay more than on the street? The answer to this question will depend on what premium they pay for control of the company, which, of course, contradicts everything that we wrote above. If we had to guess, we’d say it’s the company’s preferred option, but it’s complicated enough to mean this outcome is far from certain.
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