As chip design company Arm prepares for one of the most important IPOs of 2023, it is posting a strong financial performance unlike many other semiconductor companies.
SoftBank Group acquired ARM for $32 billion in 2016; The Tokyo-based tech holding company reached an agreement to sell the company to Nvidia (Ticker: NVDA) two years ago, but the deal was eventually scrapped amid opposition from both other chipmakers and regulators.
Arm does not manufacture or sell components. Instead, the company develops widely used chip designs – ARM-based processors can be found in almost every mobile phone in the world. The company also continues to see growing demand for ARM-based chips in both cloud data centers and automotive applications.
Since the failure of the Nvidia deal, there have been widespread expectations that SoftBank would opt to list Arm instead. Had the IPO market not effectively closed in 2022, it might have happened last year. But both SoftBank and Arm are committed to going public in 2023.
Arm CEO Rene Haas said in an interview with Barron’s on Tuesday that the company is “fully committed” to going public this year. “Planning is in full swing,” he said. “There’s a lot of inner energy at work.”
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Meanwhile, the company continues to report solid results. In the December quarter, Arm had revenue of $746 million, up 28% year over year, with adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization, of $450 million. (To put that in perspective, Advanced Micro Devices (AMD) had fourth-quarter adjusted EBITDA of $1.4 billion on sales of $5.6 billion.)
Arm generates revenue in two ways: from licensing the technology for new applications and from ongoing royalties as the devices come to market. Royalty revenue for the December quarter was $300 million, up 65%. The strong growth is due to new long-term agreements with four key customers, including an automaker, a cloud service provider, a microcontroller company and a consumer electronics semiconductor company.
Royalty revenue was $446 million, up 12%, which was slightly slower than the 18% recorded for the company’s first 9 months of fiscal March 2023. Haas said that while the company wasn’t immune to the slowdown in PC and handset weakness, he notes that Arm’s results were buffered by the fact that cutting-edge phones generally have more complex processors — with higher licensing fees — than older models have.
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And Haas adds that the company continues to see strong growth from the cloud and automotive markets. In the automotive market, he says, the company has an 85% market share in processors for in-vehicle entertainment systems and a 55% market share in assisted driving applications.
When asked about the red-hot artificial intelligence software trend, Haas noted that the type of large language models used by Open AI, Google and others in generative AI applications require “huge numbers of computation cycles,” which is what demand for ARM-based processors should benefit.
Write to Eric J. Savitz at [email protected]
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