SoftBank Buying ARM – Good or Bad?

In what was to be a quiet Sunday, news came about an apparent deal for Softbank to buy ARM Holdings. This is completely out of the blue. It is a bit difficult to find any “synergies” between the two companies.

There is some speculation on Twitter by smart people I follow that suggest this is more of an investment play, the kinds of things Softbank likes to do. That is certainly possible. Some speculated Softbank could break the parts up and auction them off. However, the valuation of this deal is quite the head scratcher for me.

ARM is roughly a $600m a year in revenue business. Yet the deal is for $32 billion dollars — 70 times ARM’s 2015 net income. Oddly, licensing businesses are not generally that big. For some additional perspective, Qualcomm’s licensing business is in the $1.3-1.5 billion range and they have one of the largest licensing businesses out there. It is possible to read into the valuation there is more going on here and it is not just an investment play.

What Could Change?
The answer here is, hopefully nothing. Ideally, Softbank will let ARM continue to operate as its own company and won’t look to rock the boat or make any significant changes. Very big companies depend on ARM — Apple, Qualcomm, Nvidia, Huawei, Broadcom/Avago, to name a few. If I was one of these companies, I’d be slightly concerned by the chance things may change. For one, those companies are architectural licensees — they have the license to develop their own custom SoCs based on ARM instruction sets. If Softbank raises the price of this type of license, for example, it will have an impact on those who depend on it for differentiation of their silicon offerings.

The other concern would be talent leaving ARM. I’m not concerned about this yet but, if Softbank tries to make too many changes, some great silicon designers may be looking for work elsewhere. If that happens, we run the risk of the quality of ARM designs, designs many depend on, to possibly go downhill. I don’t view this as a likely scenario but certainly one to keep an eye on.

If the auction theory plays out, that could potentially have negative impact. Who acquires certain IP would be of the utmost importance if bits of ARM are auction off. Many major industry players are deeply vested in ARM technologies.

Part of me is wondering what Intel is going to do in all of this. Perhaps it was disclosed that Intel was, in fact, looking to be more aggressive with ARM-based tech and that is one reason the valuation is so high. Or, should this deal impact the core ARM licensees too much, does Intel create a licensing business for x86 and allow Apple, Qualcomm, etc., to start designing x86 cores on leading edge process technology?

There are still many semiconductor industry acquisitions ahead and this deal may be one that sparks a string of others in the very near future. I’m sure more game theory and scenario theories will come out in the coming days but this is an interesting story line, with potentially large impact, to follow.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

10 thoughts on “SoftBank Buying ARM – Good or Bad?”

  1. Does Apple yet have, or can it quickly build-up from where it currently is, the chip design capabilities to go it alone if Softbank-run ARM changes in adverse ways? I wonder if this only is yet another reminder to Apple that depending upon others for critical technology carries risks, as it did with Microsoft, Adobe, and Samsung?

    1. Apple licenses the instruction set and then designs their own architecture from there. Then for the GPU, which may be the more critical element here for their ambitions, they license technology from Imagination and customize the GPU to their needs. So assuming the ARM ISO continues meaningfully Apple will be ok.

      As I point out many are deeply invested in ARM and that is why any foundational changes could be concerning from many. Reading many notes on the subject, it does appear Softbank will leave the company as is. For now at least.

      1. It’s also pertinent to note that SoftBank was the first carrier to sell iPhone in Japan (like AT&T in the US), and is still very dependent on Apple for its wheel of fortune.

      2. Thanks for those points. Has there been any reaction, public or otherwise, by Apple regarding the ARM deal?

  2. So when do we hear of MS buying Intel’s personal computing chip design division? Since they are hell bent on going after Apple in the high-end of the segment.

    1. If you were to ascribe to Apple supporter’s logic, that ought not to disturb you.
      For the record, it would me.

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