Dear Reader,

No one would accuse us of being a business and finance magazine, but we do cover technology, and the tides of tech often follow the tidings of business events. I sometimes wonder if our discussions of business sound as fluffy to business people as a business magazine's discussion of tech sounds to us. The reference frames are so different, and the truth is usually hidden somewhere in between.

The big news this month was the Initial Public Offering (IPO) of chip designer ARM Holdings. ARM is known for its unusual niche in the computer hardware universe. They don't make chips themselves, but they license their designs to other manufactures, including Qualcomm, Broadcom, Samsung, and many more.

ARM is well known for its presence in smartphones and other mobile devices. ARM-designed devices are thought to inhabit nearly 99 percent of all smartphones. The ARM processors, it seems, use less power than the alternatives. This emphasis on low power is even helping ARM make some headway in the high-performance computing (HPC) market. Even in the all in, full-power world of HPC, power efficiency is important, because power usage and cooling (which is often related to power usage) are often limiting factors in the design.

I was encouraged to hear that ARM was offering an IPO because they are an established company with an actual history and a catalog of successful products. I don't know how many IPOs we've reported on through the years for startups that are projected to make a profit in five years if a lot of things that are also "projected" happen according to projections. A stable company with stable products entering the stock exchange? Real tech? What could be healthier?

A close look at this one, though, shows that this IPO defies any simple explanation. First of all, the Japanese holding company SoftBank, the current owners of ARM, placed only 9 percent of ARM shares in the IPO. One of the main reasons for most IPOs is to raise money for the company to develop and expand (as well as to make the current owners rich). Putting up only 9 percent of the shares limits how much money you can raise, and it also limits how rich you can make the current owners.

And then there is the matter of the $8.5 billion in loans SoftBank took out with 75 percent of ARM shares as collateral. This mini-IPO is apparently tied in somehow with the terms of the loans. Why did they borrow the money? A tech watcher would say that ARM's work is concentrated on the design end, and it takes a long time to roll out new chip designs. They are thinking about what they'll need in order to have designs ready five years from now. And then there is the overall decline in smartphone sales (ARM's cash cow) and the trade uncertainties in China, where most smartphones are made. Will ARM need the money to branch into other areas?

A business watcher, however, would say, "Silly techies, this isn't about ARM – it is about SoftBank." ARM is an asset, which SoftBank is free to leverage, sell, or deploy in any way it can to improve the overall position of the portfolio. Some of SoftBank's priorities have little to do with ARM and its chip designs. In fact, SoftBank tried to sell ARM to NVIDIA just last year, and they would have succeeded if the US Federal Trade Commission had not put on the brakes.

As a business matter, SoftBank has plenty of uses for the $8.5 billion that don't have anything to do with grinding out new chip designs. For instance, the company is known to be interested in the emerging AI field and has even discussed a possible alliance with OpenAI, creators of ChatGPT. Selling only 9 percent of the shares keeps the supply of shares low, which helps to prop up the share price and, in turn, ARM's overall valuation. Many commentators have noted that the ARM share price was significantly overvalued based on its price to earnings ratio, which adds to the weirdness of the whole event.

Does the ARM IPO indicate an investment in ARM, or is it a signal that SoftBank is trying to extricate itself from ARM? Probably a little of both, or you could say, somewhere in between.

It's always somewhere in between.

Joe Casad, Editor in Chief