Cadence could be good fit as ARM shopped around

Cadence could be good fit as ARM shopped around

Business news |
By Nick Flaherty

However, other reports state Softbank is less keen on selling ARM to another potential buyer, Nvidia. Another possibility is that EDA and IP company Cadence Design Systems Inc. could come through as potential home for the UK licensor of processor technology.

Softbank Group paid $32bn for ARM back in 2016 in the hope of leveraging IoT to greater revenue and profits. Unfortunately, ARM’s financial results have subsequently deteriorated making Softbank look more like a money-recycling conglomerate than a creator of value.

Softbank has said it is considering returning ARM to the public markets in 2023 but the company is under pressure to re-arrange its balance sheet more quickly and a sale of ARM to a single company or consortium might bring in more money than an IPO and be the fast solution it needs.

Reports over recent days have revealed that Softbank Group approached Apple Corp. about the possibility of the consumer giant acquiring ARM. ARM is the supplier of processor architecture to Apple and this has helped the company pioneer the smartphone market and it is now applying the architecture to its laptop computers (see More details emerge of Apple’s eviction of Intel processors from PCs).

As we indicated previously, Apple is not a good home for ARM. It either destroys the key value proposition that ARM develops cores for many chip companies, or it requires Apple to add another model to its business portfolio (see Opinion: Refocus is good; suits a sale). And adding such a business model could see Apple trying to supply competitors with IP; generally a messy situation and one that might necessitate attention from anti-trust authorities.

One thing that Apple ownership would prevent is a Chinese destiny for ARM. That is something that was not avoided in the case of Imagination Technologies (see Opinion: China has had its way with Imagination), another case in point where Apple’s hiring of GPU engineers was a factor in the subsquent collapse and sell off of the IP licensor. Nonetheless keeping ARM out of Chinese hands is likely becoming increasingly important to UK and US governments.

Next: Nvidia has brass in pocket

Whatever government concerns are swirling around, Apple has reportedly given the incompatibility of business models as its reason for turning down Softbank.

Meanwhile Nvidia has reportedly approached Softbank seeking to acquire ARM. Nvidia, a leading GPU vendor, has successfully leveraged that skill into supplying engines for artificial intelligence software in data centers, although it is also clear that architectures for AI are in a state of flux. Nvidia’s success has boosted its market capitalization to more than $250 billion (see TSMC becomes world’s biggest chip company), giving the financial muscle and the incentive to acquire ARM.

But while Nvidia may be keen, an ARM acquisition would hit the same business model problem that an Apple acquisition would. It would set Nvidia supplying most of the leading chip companies with intellectual property while also seeking to compete with many of them. This could also upset antitrust authorities and any such multibillion dollar deal is bound to take some time.

And then there is the observation that a certain key individual has joined the board of directors of Softbank Group.

Lip-Bu Tan, founder and chairman of venture capital company Walden International, has been CEO of Cadence Design Systems Inc. (San Jose, Calif.) since 2009. Tan joined the board of Softbank Group in May 2020.

Next: Shaker and mover

Tan is undoubtedly one of the shakers and movers of the semiconductor industry. He has held down the top job at Cadence while also being one of the venture capital leaders that has overseen the return of equity investment to semiconductor companies. As a result he has been on the boards of directors of multiple companies.

The EDA software industry sector has been moving into IP supply for many years and that business now makes up a significant part of the revenues of leading EDA firms. Licensing EDA software is a very similar business model to licensing IP cores and the two are closely related. It makes for a good fit and Synopsys or Cadence would make a good home for ARM.

One question would be whether Cadence can afford the $40 billion or so that might be the price tag, although with a stock-based merger and calling on multiple entities to take a piece of the action it could be a tractable problem. Tan’s connections mean he might be the best person to put such a deal together.

The question then becomes whether any major deal can pass regulatory scrutiny and get done while relations between the United States and China continue to deteriorate.

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