SoftBank’s Arm is seeking the largest Nasdaq IPO in almost two years, targeting a valuation of $60-70bn despite flat revenue and declining net profit.
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Specialist
Former C-level Executive at Arm
Agenda
- Independent growth in data centre and cloud markets without Nvidia (NASDAQ: NVDA)
- Data centre ARM CPU (central processing unit) IP integration prospects
- Relationship with licensees – Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN) and Qualcomm (NASDAQ: QCOM) – and scope for closer collaboration
- Entry into adjacent markets and potential for growth in existing markets such as automotive and data centres
- IPO and alternative prospects
Questions
1.
How is the semiconductor shortage impacting Arm?
2.
Arm’s financial returns have been lagging, which is reflected in data from SoftBank indicating that adjusted EBITDA peaked at about USD 800m in 2016, before falling to around USD 270m in 2020. What do you think could have driven this? Do you think it’s mostly competition or partly the semiconductor shortage?
3.
Other data from SoftBank indicates that Arm’s royalty revenue has increased by about 22% in the last nine months. What do you think has driven that?
4.
What’s your outlook for licence fees, which seem to make up the other half of Arm’s sales vs royalties?
5.
You suggested that you disagree with SoftBank’s strategy of focusing on IoT because the chips have a lower price point, and that the chips for mobile and servers had a higher price because you get a higher royalty per chip. Do you think mobile and server, and data centre will be Arm’s key opportunity areas as an independent company? Where else should it focus on?
6.
How can Arm grow in higher-performance end markets such as server and data centre without a tie-up with Nvidia?
7.
Do you think Nvidia would still use Arm’s CPU [central processing unit] IP?
8.
Do you think that Arm and Nvidia could develop a closer relationship, perhaps through a strategic partnership, or might it just continue as is?
9.
You suggested that there’s an increased growth in the amount Arm’s customers are spending on data centre in particular. Could you quantify that as an estimated percentage increase since 2016, or where you think it might go in the next three years?
10.
What different architectural approaches are taken when putting together data centres?
11.
Could Arm’s in-depth relationships that you highlighted turn into something like licensees such as Apple, AWS or Qualcomm creating their own IP designs and chips for downstream markets? Would that represent another opportunity for Arm?
12.
How do licensees integrate Arm IP into their CPUs, GPUs [graphics processing units] or DPUs [data processing units]?
13.
You touched on automotive as a high-performance end market that Arm could grow into. Arm’s market share to CPU IP in autonomous driving and ADAS [advanced driver-assistance systems] is about 30-40%, and about 10-20% in infotainment. How do you expect Arm to grow beyond those statistics?
14.
You seem to think Arm should be focusing on data centre and automotive. What other end market should Arm focus on?
15.
R&D intensity tends to increase by each product launch. How can Arm amortise its R&D expenses as R&D integrity increases?
16.
You mentioned you thought that SoftBank had increased the cost of Arm quite significantly to a peak of about USD 1.9bn in 2019, before falling off again in 2020, which is as far as the data goes. Do you think that downward trend will have continued into 2021 and beyond?
17.
When do you think the inflection point for automotive and data centres will take off and how long might it take for customers to start adopting at scale? What key milestones should we focus on?
18.
What’s the revenue arrangement with Arm China? Does it limit Arm getting licensees for made-in-China mobile phones?
19.
Where does Arm’s IP reside, considering the potential impact of a float on NASDAQ for the company? I would have thought that if Arm becomes resident in the US, it could impact licensees due to US export controls on semiconductors to China.
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