Softbank Exploring Arm Options, TikTok’s Algorithm and the Censorship Debate

Softbank Exploring Arm Options
Yesterday, the Wall St. Journal reported Softbank is exploring options around Arm Holdings, which they own and purchased for $32 billion four years ago. The price, which was shockingly high for a company that does a little over a billion dollars of annual revenue and has a little over 3 billion in assets. Regardless, Softbank saw something and paid a pretty premium.

Softbank had stated their plan was still to let Arm go back into the public markets with an IPO, and that likely still makes the most sense. However, the Wall St. Journal reports Softbank is even exploring a sale of Arm as well. Interestingly, Arm last week announced they were proposing to transfer its two IoT Services Group (ISG) businesses, IoT Platform and Treasure Data, to new entities that would be owned and operated by SoftBank Group Corp. and its affiliates. The move is positioned as allowing Arm to focus more on its core semiconductor IP. This tells us the IoT platform and data were not core to Arm and perhaps more core to the primary reason Softbank purchased Arm in the first place. This move will allow Arm to focus purely on client, infrastructure, automotive, and embedded/IoT devices.

The areas of focus for Arm make sense since those are the growth areas and, as a public company, the ones where most revenue growth could happen and, therefore, positively impacting their stock if the public option is the route they go. But the question of the sale is an interesting one.

I immediately got questions on Twitter and via email from subscribers asking if Apple should try to acquire Arm’s IP. The short answer is no, for various reasons, but I understand why the question arose. The concern for Apple and any Arm architecture licensee, which consists of big hitters like Nvidia, Qualcomm, Broadcom, to name a few, is if Arm IP was to fall into the hands of a competitor. Given the asking price would be quite high, I still don’t think an acquisition is the most likely scenario, but it is worth thinking through potential scenarios just in case.

The first thing that I truly do believe is Arm needs to be a neutral entity. This is why IPO makes the most sense, but even in that scenario, I worry investors don’t see enough growth potential to infuse Arm with cash, it needs to keep innovating their IP for customers. While it is true Apple and others only license the instruction sets from Arm and then make their own custom designs, these companies often do benefit from IP innovations in new Cortex designs that, in many cases, influence their own architectures.

The other element of ownership that comes into play is that of politics. It’s no secret all of China’s semiconductor ambitions rely on Arm technology. Softbank has already sold off a majority stake in Arm’s China business to a Chinese private equity firm that includes some of Arm’s partners which likely include Huawei, and possibly Mediatek. While I am not sure if China could, or if regulations would even allow China to make a play to buy Arm, it is certainly a scenario that would hurt many global companies who rely on Arm.

While again, I prefer an IPO for Arm and total neutral operations, a fascinating intellectual exercise could be what if Intel purchased Arm and kept it as an independent company but started intentionally tying more Arm chip manufacturing to their fabs. There is obviously a strategic need for Intel to fill fabs, and many of us have long argued they needed to make Arm chips using their process technology. One could argue if they did this many years ago, they might have kept process technology leadership rather than lost it to TSMC.

The other context here is around the US CHIPs act. While I think the US government needs to do more with this to encourage semiconductor innovation in the US, keeping Arm IP in the hands of western countries is strategically important.

I could make an argument the semiconductor race has taken on new importance and, in some cases, maybe as critical to countries’ future innovation/economics as was something like the space race. Arm plays an important role in the future of computing, and while revenue potential is questionable, the value of their IP is exponential. What happens with Arm IP is more important than many realize, which is why what happens with Arm will be critical to watch.

TikTok’s Algorithm and the Censorship Debate
Ben Thompson had a great article today that brings up a new debate in my mind. In fact, Ben has largely been critical of Facebook and Twitter’s handling of misinformation as he has warned about the slippery slope of censorship. Something I completely agree with.

The critical point Ben touches on is that of TikTok’s algorithm. This paragraph is extremely impactful.

The point, though, is not just censorship, but its inverse: propaganda. TikTok’s algorithm, unmoored from the constraints of your social network or professional content creators, is free to promote whatever videos it likes, without anyone knowing the difference. TikTok could promote a particular candidate or a particular issue in a particular geography, without anyone — except perhaps the candidate, now indebted to a Chinese company — knowing. You may be skeptical this might happen, but again, China has already demonstrated a willingness to censor speech on a platform banned in China; how much of a leap is it to think that a Party committed to ideological dominance will forever leave a route directly into the hearts and minds of millions of Americans untouched?

Early on in my use of TikTok, I observed the power of this algorithm as a primary differentiator in discovery. It is this algorithm that drives its stickiness. Understanding TikTok is a staple of Gen Z’s daily habits, when I talked to my kids about this it was shocking to me how much they understood that the more videos they liked, the more the algorithm showed them content they wanted vs. content they did not. I tried this, mostly clicking on videos of dogs, or animals, or things that were funny, and sure enough, I saw more of those videos than one memes or other things I did not care about.

The algorithm itself is TikToks largest differentiator. But to Ben’s point, if controlled by someone with an agenda, then whoever controls the algorithm could then potentially control or sway public opinion. My first reaction to Ben’s piece was to say it is not the algorithm that is the problem but the fact it is controlled by a Chinese company. But as I thought more about it, I think the question should be raised if such an algorithm should exist, to begin with.

This element of AI bias has been a concern voiced by many for years. It seems increasingly difficult, at least at this point in time, to not have a bias in AI and even more worrying if a political agenda or misinformation campaign could be injected into that algorithm intentionally. TikTok’s algorithm is unique in that you get a steady stream of content from people or sources you don’t follow. YouTube may come the closest in showing you a feed of recommended content from outside the channels you subscribe to, but you still have to click that content to watch it. TikTok just shows you a continuous stream of content dictated by the algorithm.

The uniqueness of this brings up the question I mentioned if it should even exist. Should TikTok get banned, is it likely Google, Instagram, or Snapchat would just duplicate this experience, or should they even try? I don’t have the answer, but I do believe this is an important debate.

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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

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