Two weeks ago, ARM, a semiconductor giant under SoftBank, submitted IPO documents to the U.S. Securities and Exchange Commission and formally applied for listing in the U.S. Now, the latest IPO plan has been released. With the title of the largest IPO of the year, it is naturally highly expected by all parties, including giants such as Apple, Google, and Intel. However, as a company that "only sells designs, not chips", ARM's profit level is far less than that of "shovel sellers" such as Nvidia.

​In the roadshow video, the appearance of Nvidia CEO Jensen Huang attracted attention. In 2020, Nvidia planned to acquire ARM for $40 billion, but was opposed by US and British regulators, and the two companies abandoned the transaction in 2022.

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ARM, a semiconductor design and software company headquartered in Cambridge, UK, is taking the Nasdaq market by storm. Its 32-bit RISC microprocessor has a staggering 85% market share, making it a major force in the global semiconductor industry. ARM's success stems from its unique business model and high-performance, low-cost and energy-efficient CPU products and related technologies.

Background: ARM only sells designs and pays for them

ARM's CPUs are widely used in all kinds of electronic devices, from smartphones, tablets, personal computers to data centers and network equipment, as well as cars, smart watches, drones and industrial robots. According to ARM estimates, about 70% of the world's population uses ARM-based products, and this number is still growing. In the latest fiscal year alone, ARM shipped more than 30 billion chips based on its architecture, an increase of about 70% from 2016.

ARM's business model: innovation and licensing

ARM's uniqueness lies in its business model. It does not produce or sell any actual chips or devices, but instead licenses CPU architecture, cores and software tools to partners, allowing them to customize design and manufacturing according to their needs. This allows ARM to focus on innovation and R&D while avoiding the risks and costs of production, inventory and sales.

ARM charges two types of fees. The first is a one-time upfront license fee, which is charged when signing a license agreement, reflecting the value of ARM technology and market demand. The second is a royalty fee, which is charged for each chip or device based on the partner's shipments, reflecting the sales and market share of the partner's products.

According to ARM's prospectus, about 80% of the company's revenue comes from third parties, of which license fees account for about 40% and royalty fees account for 60%.

Financial Data Analysis: Profitability

Judging from the financial data, ARM has shown strong profitability. In the past few fiscal years, ARM's revenue has grown steadily, and its revenue is expected to reach US$2.679 billion in fiscal year 2023. Net profit has also shown a trend of sustained growth, and net profit is expected to reach US$524 million in 2023. The company's gross profit margin remains above 95%, operating profit margin remains above 20%, and net profit margin remains above 15%, which shows its financial health and stable cash flow capabilities.

The company's main costs include research and development expenses, sales and marketing expenses, administrative expenses and other expenses. Among them, research and development expenses are the largest expenditure item, accounting for more than 40% of total revenue, reflecting ARM's high emphasis on technological innovation. Sales and marketing expenses and administrative expenses account for 20% to 40%, showing a downward trend year by year, accounting for 28% in fiscal year 2023. This shows that the company has made significant progress in operating efficiency.

Future challenges and opportunities

Although ARM has many competitive advantages in the global semiconductor market, including highly scalable architecture, extensive ecosystem and continuous innovation capabilities, its recent fiscal quarter has shown a certain downward trend. This has led some people to question its valuation targets, especially in the fiercely competitive semiconductor market, how to maintain steady growth remains a challenge.

SoftBank’s lifeline

According to information, Japan's SoftBank plans to regard ARM as a lifeline to improve the financial situation of SoftBank Group and Vision Fund.

It cannot be ignored that ARM has submitted a prospectus to the U.S. Securities and Exchange Commission, seeking to be listed on the Nasdaq Global Select Market, with a valuation target of $60 billion to $80 billion, and seeking to raise $8 billion to $10 billion in cash. This move will further shape ARM's future, and let us wait and see how this British technology unicorn continues to emerge in the global semiconductor market.