search slide
search slide
pages bottom

Japan’s SoftBank offers ARM a $32 billion buyout

UK-based ARM Holdings has dominated the cell phone industry for decades, with an estimated 50 billion ARM processors built by the year 2014. Now the company has been acquired by Japan’s SoftBank in a deal worth $32 billion (£24.3 billion). ARM will retain its Cambridge, UK headquarters and SoftBank has pledged to double the company’s headcount over the next five years. SoftBank has also stated it intends to retain ARM’s existing senior management, brand, and partnership-based business model and culture.

On the one hand, this looks like it could be a huge win for ARM, which gets a vast boost in resources and capabilities. SoftBank is offering a 50% premium on ARM’s current share price, which makes the deal a great option for shareholders, and SoftBank owns other technology companies that might benefit from closer relationships with ARM.

On the other hand, those closer relationships could also become a significant problem for ARM’s business model.

ARM dominates the mobile and embedded industries partly because it operates a tiered business model that doesn’t prioritize any single customer. ARM doesn’t sell finished CPUs the way that Intel or AMD does. Instead, it offers multiple types of design and product licensing. Customers who want a complete, standardized solution can license a specific CPU, GPU, or other ARM product. AMD’s Seattle, for example, is based on ARM’s Cortex-A57 processor and built on 28nm technology.

ARM’s other major license tier is an architectural license. Let’s say you want to build a chip that’s ARMv8 compatible, but designed to your own specifications. ARM’s business model allows for this. All of Apple’s current products are based on its own custom implementation of ARM’s CPU architecture, as are Qualcomm’s Krait and Kryo-based SoCs. By offering these two licenses’ ARM has cultivated a position as the neutral performance provider to anyone who wants it.

SoftBank, on the other hand, already owns one US wireless carrier (Sprint) and another in Japan. Carriers don’t design their own devices, but it’s not hard to see how SoftBank might be interested in pairing with another company to create a Sprint-specific device that leveraged its own custom silicon. Any such product could disrupt the balance ARM has maintained for years. Over at PCMag, Sascha Segan has delved into more detail on how this could change the mobile market. Recode is reporting that Apple and Intel might be interested in buying ARM as well, but an acquisition by either company would create an enormous and immediate conflict of interest in a way that SoftBank’s wouldn’t. Apple already captures the vast majority of profit in the smartphone business (Samsung scrapes up most of what’s left) and Intel just announced its intent to exit smartphones and tablets. Any move by Apple or Intel to acquire ARM would almost certainly trigger a great deal of scrutiny from government regulators, since any significant change to ARM’s license model could disrupt the entire wireless industry.

The SoftBank acquisition isn’t expected to change anything in the smartphone industry in the short term and any movement away from ARM designs would take years to come to fruition. Imagination Technologies might be salivating at the thought of a resurgent MIPS, but ecosystems take time to build. Given that ARM is an attractive acquisition target because of its position at the center of the mobile Internet, SoftBank is unlikely to make any changes that would upset this status quo.

Leave a Reply

Captcha image