ARM files for IPO, expected to be biggest of 2023

ARM Holdings, the British chip designer, reported a 1% fall in annual revenue due to a slowdown in smartphone sales. The company is planning to go public in an IPO that is expected to be the largest of the year.

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ARM’s sales declined to US$2.68 billion for the year ended 31 March, hurt mainly by a slump in global smartphone shipments. Sales for the quarter ended 30 June fell 2.5% to $675 million.

The company said that more than 50% of its royalty revenue for the most recent fiscal year came from smartphones and consumer electronics. The global smartphone market is on track to hit a decade low this year, according to Counterpoint Research. ARM’s modest decline in revenue, despite heavy reliance on smartphones for royalties, suggests that its per-chip rates have increased.

ARM is expected to raise between $8 billion to $10 billion from the IPO, after SoftBank bought the 25% stake in ARM it did not directly own from its Saudi-backed Vision Fund. SoftBank confirmed the deal with the Vision Fund in its filing on Monday.

ARM makes money from upfront licensing fees for technology and then a royalty paid on each chip sold by its customers. The company has been expanding those royalty revenues, saying that the newest version of its technology has the “potential to drive our royalty opportunity per device even higher”, according to its filing.

ARM’s chip designs dominate the smartphone industry, but they are also used in laptops made by Apple and some Windows machines. Its technology has also gained 10% market share in cloud computing, where ARM-based chips are used in networking as well as the central processors in servers.

The one place where ARM has yet to make major inroads is in the artificial intelligence market, where Nvidia is the leading player. ARM said that export controls imposed by the US and British governments and a general downturn in the Chinese economy mean that “we expect to continue to see declining royalty revenues, and we could see a decline in licensing revenues, derived from” China.