Softbank plans to acquire arm for $31 billion, or become Intel*s biggest rival!

Release date：2016-07-19   Views：2037

Softbank plans to acquire arm for $31 billion, or become Intel's biggest rival!

July 18, 2016

According to the financial times on the morning of July 18, Beijing time, Softbank of Japan has agreed to pay 23.4 billion pounds (about US $31 billion) to buy British chip design company arm, according to people familiar with the matter.

Softbank and arm's acquisition negotiations have not yet been completed, sources said. Once completed, the deal will be the UK's first large-scale M & A since brexit.

Softbank, headquartered in Tokyo, has been investing in technology, media and communications companies. Softbank and arm will announce the deal as soon as Monday morning, sources said. So far, the two companies have not commented on the report.

Arm -- little known world giant

Arm specializes in chips and chip components, and the company's current market value is about $22 billion. Arm was founded 25 years ago and now has 4000 employees. The acquisition is expected to be the biggest for European technology companies. Softbank's offer is 17 pounds in cash per share, a 43 per cent premium to arm's closing price last week.

Arm is engaged in the research and development of low-cost, low-power and high-performance chips, and 99% of smart phones and tablets in the world adopt arm architecture. All iPhones and iPads use arm chips, as do most Kindle readers and Android devices.

But arm neither produces nor sells chips, it only sells chip technology licenses. Although almost all smart phones around the world adopt the company's chip design, arm can only get 1 cent for each such mobile phone sold, while Intel's chip unit revenue is as high as tens to hundreds of dollars.

In December 1978, Hermann Hauser, a physicist, and Chris curry, an engineer, founded the Cambridge processing unit (CPU) in Cambridge, UK. Its main business is to supply electronic equipment for the local market. In 1979, CPU company was renamed acorn computer company.

Acorn initially planned to use Motorola's 16 bit chip, but found it too slow and too expensive. Instead, they asked Intel for the design information of 80286 chip, but they were refused, so they were forced to develop their own chips.

In 1985, a team led by Roger Wilson and Steve Furber of acorn company designed their own first generation 32-bit, 6m Hz processor. They used it to build a RISC instruction set computer, referred to as arm (acorn RISC Machine). This is where the name arm comes from.

Softbank has long foreshadowed the acquisition of arm?

The move comes just weeks after the brexit referendum, which could reduce the attractiveness of UK companies. However, as arm is a global chip design company, it has a leading position in the key chip field, and its revenue is also obtained in the form of US dollars, so it is less affected.

The pound has fallen nearly 30% against the yen over the past year, enhancing arm's appeal to Softbank.

Just a few weeks ago, Mr. Sun fired nikesh Arora, Softbank's chief Trading Officer and former Google executive.

Under the leadership of sun Zhengyi, Softbank has developed into a multinational Telecom and media giant with a market value of 68 billion US dollars. Its assets include sprint, the fourth largest telecom operator in the United States, and Yahoo Japan.

Prior to that, Mr. Sun had invested $20 million in Alibaba in 2000, and that investment has now increased to $65 billion. He also spent $15 billion on the loss making Vodafone Japan business in 2006 and built Softbank into Japan's third-largest telecom operator.

Over the past decade, Softbank has spent about $82 billion on more than 140 acquisitions. Almost all of the deals have been carried out by aurora over the past four years, including an investment in didi travel and its rival Uber.

Arm is the big cow relying on patent

Arm has long been considered a possible target for Intel, which failed to catch up with the wave of smartphones. Intel's x86 architecture is developed for PC platform, but it consumes too much power when used in smart phones.

Since arm is the only well-known technology company in the UK, the consensus is that US technology companies will use a lot of overseas cash to acquire it.

Arm's technology was first developed within acorn, a British computer manufacturer, in the 1980s, and later split into an independent company, which was heavily supported by apple. The company's technology was used in the first generation of mobile devices, including Apple's handheld device Newton.

Arm's business model is to license technology to other hardware manufacturers, so it has become the leading enterprise in the field of mobile chip. The company charges a royalty for every device that uses its technology, which has a huge base. Last year, 15 million arm architecture chips were delivered, an increase of 3 million from a year ago. About half of them come from mobile devices, but arm's network devices and Internet of things chips are growing faster.

Because arm is only a chip designer rather than a manufacturer, it can obtain a high profit margin through intellectual property rights. However, the company's revenue last year was only 1 billion pounds, a very low proportion of the global chip industry. The acquisition price is equivalent to 70 times of arm's net profit last year and more than 50 times of EBITDA (earnings before interest, tax, depreciation and amortization).

By licensing technology to top hardware vendors such as apple and Samsung, the company is not expected to be a target because such a deal could alienate other customers.

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