ARM-SoftBank: Selling at the top or buying at the bottom?

July 18, 2016 // By Peter Clarke
Is ARM cashing in its chips after a successful 25-year run or is it simply looking to SoftBank for financial back up because the best is yet to come in a global IoT revolution?

Processor intellectual property licensor ARM has had a stupendous 25-year rise to fame and fortune and so it is interesting that its management has chosen to not only entertain but also recommend an offer to buy the company from SoftBank Group Corp., a Japanese telecommunications company (see ARM agrees to be bought by Japan's Softbank ). 

SoftBank – essentially the telecommunications creation of entrepreneur, founder and CEO Masayoshi Son – has offered about £24 billion or $32 billion for ARM Holdings plc. This is a 43 percent premium on the share price as of Friday of last week. SoftBank has also made promises to increase UK employment by the company over the next five years and to increase investment globally.

The long view – apparently shared by Son and ARM CEO Simon Segars – is that although there may be saturation in the smartphone market, for ARM the best is yet to come with the advent of the Internet of Things and networked autonomous vehicles. The view is that IoT and self-driving cars are going to be a revolution for the human race. SoftBank wants in and thinks it can help ARM make the future happen faster. Son also given assurances that, such is the premium he is paying for ARM, he is no "hit and run" investor.

So far so good but this would still seem like a deal born of instinct and sentiment. A more pragmatic analysis of ARM would say that while he it has done well driving the smartphone revolution, that market is becoming saturated and its efforts in servers are proving slow to pay off. And if we think that margins are razor-thin in mobile phone sector they are likely to be even thinner in the billion unit volumes of IoT. It has also done well in microcontrollers and this will no doubt result in an income stream for years to come.

The thin margins