Passive SoftBank Masayoshi Son: Seeking help from Samsung to solve ARM's urgent challenges still remain

After the sale to Nvidia failed, SoftBank Group pinned the future of its chip design giant ARM on an IPO. However, the stock market is in poor shape and SoftBank is currently trying to boost its valuation ahead of ARM's IPO. To this end, SoftBank Chairman and CEO Masayoshi Son personally approached Samsung Electronics to discuss possible strategic cooperation.

SoftBank has been under pressure to cash in on ARM after its flagship tech investment vehicle, the Vision Fund, suffered a record loss last fiscal year. To raise funds, SoftBank sold its remaining stake in U.S. ride-hailing giant Uber in the second quarter and reduced its stake in Alibaba Group Holding Ltd.

Meanwhile, global tech stocks have been battered in recent months, hitting SoftBank's plans to list ARM in 2022. Son had previously said he was thinking about how to deal with ARM "almost every day" and was "very positive".

However, Son's quest for a strategic partnership with Samsung is not without challenges. If ARM strikes a deal with a particular chip company, it could face resistance from other customers and ultimately threaten its grip on smartphone chip design.

Son announced Wednesday that he plans to visit South Korea in October for talks with Samsung. "I'm looking forward to visiting South Korea for the first time in three years, and I want to talk to Samsung about its strategic alliance with ARM," he said in a statement.

Masayoshi Son, who has been working in Tokyo since the start of the Covid-19 outbreak, showed his enthusiasm for potential collaborations by visiting Samsung in person.

Lee Jae-Yong, the de facto leader of Samsung Group and vice chairman of Samsung Group, said on Wednesday that Son "may make some kind of proposal" during his visit to Seoul, "but I'm not sure."

Masayoshi Son sees ARM as the “core” of SoftBank Group, a chip design company whose products are basically the blueprints that chip companies use to finalize designs. ARM's products are popular because they are energy efficient. More than 90% of the world's smartphone processors are based on ARM's intellectual property.

A source familiar with the chip industry said ARM is the "sole leader" in mobile phone chip design.

Currently, Samsung is designing its own smartphone processors and is an important customer of ARM. Moreover, Samsung is also expanding its chip foundry business and opening up more cooperation opportunities.

As of the end of June this year, Samsung held 125 trillion won ($89 billion) in cash. The company is believed to be exploring acquisitions in the chip space to diversify its semiconductor product line and expand beyond memory chips and smartphone processors.

CW Chung, head of Asia technology research at Nomura, said the odds of Samsung buying all of ARM alone are low given antitrust concerns have thwarted Nvidia's earlier takeover attempts. "It is more likely that Samsung may seek to acquire part of ARM," he said. Another possible scenario, he also said, is for SoftBank to first sell a partial stake in an ARM to Samsung before pursuing an IPO for ARM.

The head of Samsung's domestic rival SK Hynix also proposed to acquire ARM at the shareholders' meeting in March this year. Industry players are expected to closely monitor the fate of ARM's proposed partnership with Samsung.

But there are also obstacles for ARM to working too closely with another semiconductor company. ARM's strengthening of ties with a particular customer could spark resistance from other customers, who fear the partnership puts them at a disadvantage.

In September 2020, graphics processor company Nvidia announced a $40 billion acquisition of ARM. However, backlash from industry peers complicated the regulatory scrutiny that ultimately led to the failure of the deal.

ARM's unrivaled position has sparked concerns, prompting companies to look for alternatives. Many chip designers and manufacturers are interested in RISC-V, a free, open-source instruction-set architecture that could challenge Arm's dominance in the field. Several startups are already offering blueprints based on RISC-V architectures. A wrong move by ARM could scare off customers and squeeze its market share.

In addition, other companies have also expressed interest in taking a stake in ARM. Qualcomm CEO Cristiano Amon, a major ARM customer, said earlier this year that the company was interested in investing in ARM. In addition, analysts and the media have speculated that the semiconductor industry may form a consortium to acquire ARM.

"I hope people expect growth in our core business," Son said. Whether it's an IPO or a partnership with Samsung, he's likely to face a tough balancing act as he charts his next steps for ARM.

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