ARM's Strategic Move: Why NASDAQ Over LSE?

Now that ARM is finally going to become a publicly traded company again, the owners of ARM have decided to list its public offerings on the NASDAQ stock exchange instead of LSE. For those unfamiliar, ARM Holdings, commonly known as ARM, is a global semiconductor and software design company. Originating from the UK, ARM is renowned for its ARM architecture, which is pivotal in the creation of processors found in many of today's mobile devices, including smartphones and tablets. Their designs have been integral to the tech industry, making them a significant player in the global semiconductor market.

What challenges has ARM faced over the past few years, why is ARM listing in the US stock exchange instead of the UK, and what does this indicate about the UK position?

What challenges has ARM faced over the past few years?

To say that ARM has been facing challenges over the past few years is an understatement. With a supposed fall in revenue, reduction in workforce, and failed attempts to sell the company to Nvidia, ARM has been hit with problems left, right and centre. 

All of these problems likely started when SoftBank, the current owners of ARM, made the company private back in 2016. Costing a total of $32 billion at the time, the buyout was the largest of its kind of any European technology company. The initial acquisition was made with the intention of transforming ARM via direct investment, restructuring, and the development of new ideas. It was also believed that ARM, being a publicly traded company, limited its capabilities as a technology company. Thus, going fully private allows for decisions to be passed through much faster.

However, it would only be a few years after this acquisition that SoftBank decided to try and sell ARM to Nvidia for approximately $40 billion. While the exact reasoning behind this offering is not entirely clear, it is generally believed that numerous investments made by SoftBank have failed to make sufficient returns. Additionally, it is well known that ARM has struggled to see increases in revenue over the past few years, going as far as to reduce its workforce significantly. 

Unfortunately for SoftBank, the announcement of the sale to Nvidia utterly outraged engineers, companies, and governments, with numerous investigations being launched against the proposal. The primary concern with the acquisition came down to the monopoly that Nvidia would have over ARM technology, being able to restrict technology access to its competitors while steering ARM design to work with Nvidia offerings. 

Considering that ARM makes up around 95% of all mobile processors, it makes perfect sense that many feared the idea of Nvidia having this market share. Thus, ARM remaining independent and neutral for all designers is in the industry’s best interests. Long story short, the proposed sale to Nvidia fell through after the deal’s expiration date, leaving SoftBank with ARM.

ARM to be listed on the US stock exchange

Despite ARM being a British company, SoftBank has decided to make ARM a publicly traded company again. However, instead of returning to both the US and UK stock markets, ARM has decided to solely use the US stock exchange NASDAQ.

According to a recent announcement from ARM's Newsroom, ARM Holdings plc has initiated a roadshow for its upcoming IPO. They are offering a total of 95,500,000 American depositary shares (ADSs), representing its ordinary shares. These shares are being offered by a subsidiary of SoftBank Group Corp. The IPO price per ADS is projected to be between $47.00 and $51.00. ARM aims to list the ADSs on the Nasdaq Global Select Market under the symbol “ARM”. This move further solidifies ARM's intention to strengthen its position in the US market.

"The IPO price per ADS is estimated to be between $47.00 and $51.00. Arm has applied to list the ADSs on the Nasdaq Global Select Market under the symbol “ARM”."

Raine Securities LLC is playing a pivotal role as a financial advisor for the proposed IPO. Other major financial institutions, including Barclays, Goldman Sachs & Co. LLC, J.P. Morgan, and Mizuho, are acting as joint book-running managers. This collaboration of financial giants indicates the significance and scale of ARM's IPO in the global market.

While the number of shares being listed and their price is yet to be determined, it is believed that SoftBank is looking for a valuation of around $60bn to $70bn. However, so far, there have been no signs that ARM is considering selling on the UK stock market, which sends strong signals regarding the UK’s stance on technology and its power in the global economy.

SoftBank has also stated that it hopes the rise of AI applications will see new growth opportunities for ARM, with the CEO of SoftBank, Masayoshi Son, stating that he will be taking a step back from SoftBank operations in order to help out with ARM’s growth into AI. However, many have pointed out that other companies, such as Nvidia, are well ahead in the AI game. 

If ARM struggles to gain a foothold in the AI market, it would reflect similar failings when ARM previously thought that the IoT market would see substantial growth but resulted in minimal effect. Overall, there are many who believe SoftBank’s evaluation for ARM is far greater than it truly is, and with technologies such as RISC-V becoming increasingly popular, ARM’s future remains uncertain.

What does this move indicate regarding the UK tech sector?

As ARM has decided against listing on the UK stock exchange, it signals that large tech companies may be losing faith in the UK. Whether this is a result of Brexit or a struggling economy is not entirely clear, but this is certainly not the first time a tech company has decided to jump ship.

One recent example of a UK business looking elsewhere was PragmatIC’s announcement to set up new foundries in the US. According to the CEO of PragmatIC (Scott White), the UK has little to offer semiconductor firms when establishing new foundries and offers few investment opportunities.

When considering that the US is offering large investment opportunities for semiconductor companies (with the goal of providing semiconductor sovereignty), it only makes sense that companies around the world are trying to enter the US market. Furthermore, by listing on the US stock exchange, it is far easier to see US investments in ARM. 

Overall, it is sad that ARM, a British company, has chosen to file in the US, but considering the unfriendly nature of the UK market to semiconductor firms, it is understandable why this decision was made.