Softbank’s $32.2 billion planned buyout of microchip design company ARM Holdings was unexpected, but raises some interesting possibilities for both companies, several IT analysts told eWEEK.
In an acquisition deal announced July 18, Softbank said it is buying ARM to expand the company’s push into the global Internet of things (IoT) marketplace. Under the deal, Softbank said that ARM’s business will continue with its existing executive management team and brand, and will remain an independent business based at its Cambridge, England, headquarters. The company also will get an expanded workforce in the future as Softbank invests in its future.
“This came right out of the blue,” Nathan Brookwood, principal analyst with Insight 64, told eWEEK. “Nobody saw this coming.”
The deal will be good for ARM if Softbank’s public comments about the acquisition—that ARM will remain an independent company and will retain its existing executive team—hold true, Brookwood said.
“I’m hoping that when Softbank says they’re going to let ARM go on being ARM and provide greater funding,” that Softbank will follow through.
On the negative side, many people in England who were excited that ARM was a technology jewel within that country “are going to be disappointed” that ARM will become a technology jewel of Japan after the transaction is finalized.
“I’m hoping that it won’t have a great impact on what ARM does day to day,” he said of the acquisition.
One thing that will maintain confidence in ARM is if its CEO, Simon Segars, remains at the helm of the business, said Brookwood. “ARM has been on a roll for several years. As long as he sticks around, I’m confident that will continue.”
In the past, Softbank hasn’t always done acquisitions well, said Brookwood, including its acquisition of the former Comdex computer show in the mid-1990s.
“That was about the time that Comdex started to go downhill,” he said. “I hope they’ve gotten better at it. [Softbank] seems to be doing well in telecom, though it took risks with Sprint,” which it acquired in 2013. “Overall, they seem to be doing pretty well.”
A key benefit of a Softbank acquisition for ARM is that “the Japanese are very patient investors,” which will let ARM grow its development work and products in the future, Brookwood said.
ARM has become the dominant player in the mobile device market, particularly in smartphones and tablets. The company designs systems-on-a-chip (SoCs), and then licenses those designs to such vendors as Samsung, Qualcomm and Nvidia. Like most others in the processor space, ARM officials are seeing the slowdown in shipments as the global smartphone market matures and tablet sales decline, and they are looking for new growth areas, according to a recent eWEEK story. Emerging markets, such as connected cars, industrial applications, robotics and the IoT will be important to ARM and others.
Patrick Moorhead, president and principal analyst of Moor Insights & Strategy, told eWEEK that while he wasn’t surprised that ARM was purchased, he was surprised that it was purchased by Softbank.
“Softbank runs really as a technology investment company, not a company that builds up a company like ARM will require,” said Moorhead. “I think this is a bigger deal for Softbank than it is for ARM. This is the most technical acquisition that it’s ever made [since] ARM is an IP company.”
And because Softbank also owns mobile carrier Sprint, Moorhead said he can potentially envision a long-term tie-in with ARM for next-generation networks built using ARM-based technologies.
Moorhead said he also expects that the ARM acquisition could mean the company will try to raise prices for chip designs for Apple, Qualcomm and Samsung as a way to pay for increased investment monies that will be provided by Softbank.
“If customers or ecosystem partners get spooked, it could give credence in mobile and Internet of things markets for both Intel and MIPS growth.”
And while Softbank has said that ARM will remain a separate business, “ARM still needs to make the case to Softbank annually and quarterly why they need certain investments,” said Moorhead. “If Softbank doesn’t fully understand the IP business, this could be a challenge.”
Analysts Wonder if ARM Will Remain Independent as a Softbank Unit
Another analyst, Charles King, of Pund-IT, told eWEEK that he sees the benefits and risks equally for both companies. “ARM shareholders get a significant mark-up on their investments—which is great news for a company whose shares have traded in a fairly narrow range for three-plus years and that pays low dividends.”
Now, the real question will be “whether the company can work as well under foreign ownership as it has in the past,” King said of ARM. “The deal is a large financial risk for Softbank, especially for a company whose annual revenues [while growing] have never topped $1 billion. Then again, with ARM well-positioned to reap significant rewards from IoT adoption, the deal could pay off handsomely.”
King said he wouldn’t be surprised if Softbank begins looking for a buyer for Sprint to help pay down some of its debt now that it is going after ARM. Sprint has been losing money each quarter for about a decade.
“The big problem there is who, or if anyone, really wants to buy the No. 4 wireless player in the U.S.,” he said.
King said he’s not quite convinced that Softbank is making the right move by buying ARM.
“While I understand Softbank’s interest in ARM, I believe the likely risks outweigh the potential rewards.”
The issue, he said, is that “the purchase will effectively turn a company whose agnostic approach to IP development has helped fuel the revolution in mobile technology into a division of a mainstream wireless carrier,” because of Softbank’s ownership of Sprint. “Selling Sprint could help blunt that perception, and the traditional divisions between IT vendors aren’t what they used to be. If I were an ARM shareholder, I’d be very happy about the deal Softbank is offering. Otherwise, not so much.”
Rob Enderle, principal analyst at Enderle Group, said he thinks the deal “introduces a lot of risk for ARM, which could play well for Intel if they can capitalize on it.”