Arm, the chip designer owned by SoftBank Group Corp, is getting close to securing enough investor support to attain the fully diluted valuation of $54.5 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 $47-to-$51-per-share range when
its underwriters close their books on Wednesday on the biggest U.S. 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 $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 $54.5 billion, the sources added.
Arm will not, however, offer more shares, given that
SoftBank wants to retain a 90.6% stake in Arm following the approximately $5
billion IPO, as originally planned, the sources said.
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 finalized 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 $64 billion valuation at which SoftBank last month
acquired the 25% stake it did not already own in the company from the $100
billion Vision Fund it manages.
Yet even with this lower valuation, SoftBank would fare
better than its $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
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% share.
Weak mobile demand during a global economic slowdown has
caused Arm's revenue to stagnate. Overall sales totaled $2.68 billion in the 12
months to the end of March, compared to $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% share and therefore more
room to expand, is expected to grow at an annual rate of 17% through 2025,
partly thanks to advances in artificial intelligence. The automotive market, of
which it commands 41%, is forecast to expand by 16%, compared with just 6%
growth expected for the mobile market.
Arm also told investors its royalty fees, which account for
most of its revenue, were accumulating since it started collecting them in the
early 1990s. Royalty revenue came in at $1.68 billion at the latest fiscal
year, up from $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% of Arm's $2.68
billion revenue in fiscal 2023.