Arm, the chip designer owned by SoftBank Group Corp, is getting close to securing enough investor support to attain the fully diluted valuation of US$54.5 billion (S$74 billion) it was seeking in its initial public offering (IPO) at the top of its indicated range, and is considering asking investors to value it higher, people familiar with the matter said on Sunday.
Following strong demand from investors, Arm will likely be able to price the IPO at the top or above its US$47-to-US$51-per-share range when its underwriters close their books on Wednesday on the biggest US stock market debut in two years, the sources said.
Arm is discussing the possibility of raising the price range and seeking a valuation of more than US$54.5 billion, in light of the IPO's oversubscription, the sources said. Alternatively, Arm is also considering keeping the price range as is and pricing the IPO above it on Wednesday, which would also lead to a valuation higher than US$54.5 billion, the sources added.
Arm will not, however, offer more shares, given that SoftBank wants to retain a 90.6 percent stake in Arm following the approximately US$5 billion IPO, as originally planned, the sources said.
Decision soon
A decision on whether to raise the price range will come in the next two days after some key orders from investors come in on Monday, according to one of the sources.
The sources, who spoke on condition of anonymity to discuss confidential deliberations, cautioned that some anticipated investor commitments had not been finalised and the trajectory of the orders could still change.
SoftBank and Arm did not immediately respond to requests for comment.
The valuation that Arm has been seeking thus far represents a climb-down from the US$64 billion valuation at which SoftBank last month acquired the 25 percent stake it did not already own in the company from the US$100 billion Vision Fund it manages.
Yet even with this lower valuation, SoftBank would fare better than its US$40 billion deal to sell Arm to Nvidia Corp, which it abandoned last year amid opposition from antitrust regulators.
Arm has already signed up many of its major clients as cornerstone investors in its IPO, including Apple, Nvidia, Alphabet, Advanced Micro Devices, Intel and Samsung Electronics.
Growth beyond mobile phones
Arm launched its IPO marketing efforts last week, seeking to convince investors it has growth ahead of it, beyond the mobile phone market, which it dominates with a 99 percent share.
Weak mobile demand during a global economic slowdown has caused Arm's revenue to stagnate. Overall sales totalled US$2.68 billion in the 12 months to the end of March, compared to US$2.7 billion in the prior period.
Arm told potential investors in New York on Thursday that the cloud computing market, of which it has only a 10 percent share and therefore more room to expand, is expected to grow at an annual rate of 17 percent through 2025, partly thanks to advances in artificial intelligence. The automotive market, of which it commands 41 percent, is forecast to expand by 16 percent, compared with just six percent growth expected for the mobile market.
Arm also told investors its royalty fees, which account for most of its revenue, have been accumulating since it started collecting them in the early 1990s. Royalty revenue came in at US$1.68 billion in the latest fiscal year, up from US$1.56 billion a year before.
An area of scrutiny for investors has been Arm's exposure to China, given geopolitical tensions with the United States that have led to a race to secure chip supplies. Sales in China contributed 24.5 percent of Arm's US$2.68 billion revenue in fiscal 2023.
