SoftBank wants to sell mobile chip designer ARM to offset losses by the company’s other acquisitions, including Uber, WeWork, and the SpaceX competitor OneWeb. The Chairman and CEO of Softbank Group, who has money invested in Uber, GM’s Cruise, Sprint and Boston Dynamics, Masayoshi Son once praised his $34 billion acquisition of ARM on “The David Rubenstein Show: Peer-to-Peer Conversations.”
The news comes a month after Softbank agreed to sell approx $20 billion worth of stock in mobile carrier T-Mobile. Softbank planned to sell approximately 200 million shares of T-Mobile, according to the filing.
So what exactly happened? Softbank was once as visionary as to be able to spot a small Chinese startup called “Alibaba” and turn it into the global e-commerce giant we know now. Here’s a rundown of events that have happened so far.
Softbank To Sell ARM: Is WeWork or Masayoshi Son To Blame?
Masayoshi San wanted to create a venture capital fund that’d invest in emerging startups to make them profitable. Softbank’s venture capital fund is called the Vision Fund. This fund raised $100 billion, which was to be invested across high profile startups; WeWork was one of them. SoftBank’s money shot up the valuation of WeWork by up to $47 billion. However, the valuation came down significantly when WeWork finally went public, and all of its balance sheets were out of order.
WeWork went from a valuation of $47 billion to needing $8 billion in bailout money. SoftBank reportedly pumped around $18.5 billion in cash into WeWork, but the company burnt through all of it. To put it simply, WeWork was given too much money, too quickly, with no proper plan on how to spend it and, most importantly, generate profit.
But that was the ultimate aim of the $100 billion Vision Fund. It invests in high growth and high-risk startups at an alarmingly fast rate so they can counter their competitors and quickly go public to deliver a financial return. Furthermore, out of the $100 billion, Softbank raised $25 billion on its own, $60 billion was given by Saudi Arabia and Abu Dhabi, and the rest came from the company’s electronic partners, Apple and Foxconn. The company raised around $40 billion of the fund money via a loan with an annual interest rate of 7%.
Surprisingly out of the 88 companies SoftBank invested in, ARM is amongst the profitable ones. It made a profit of $125 million in the last three months of 2019.
The problem here is that the $100 Vision Fund was supposed to pump cash into high profile startups for four years. But Masayoshi San burned through all the cash in two. It is evident that SoftBank is struggling, which is why Mr. San wants to sell one of his crowned jewels, ARM Holdings, to raise money.
Who Will Buy ARM?
ARM doesn’t manufacture mobile chips on its own. The companies that sell chips, Qualcomm, Apple, etc. use designs and blueprints provided by ARM to manufacture their personalized chips. Basically every mobile platform on the planet uses ARM instructions set to run its operations. Simply put, the company that owns ARM has unparalleled power in the tech world.
There is no other company like ARM on the planet, so the thought of another monopolistic tech giant like Google or Apple acquiring them is enough to scare governments, let alone a tech journalist like me. Softbank may be dumb enough to invest in a hipster CEO, but at least it’s not Google or Microsoft.
The next neutral home for ARM Holdings seems to be is Nvidia. There is no direct competition between Nvidia and ARM. Nivida’s portfolio includes datacentres, GPU’s, and self-driving chips for cars. But the acquisition is still up in speculations at the moment.
Will SoftBank eventually sell ARM or make it go public? Only time will tell. During the David Rubenstein Show, Masayoshi San praised ARM and said, “Chip is everywhere, in the car, in the refrigerator, everywhere.” You speak the truth, Mr. San, Chip is indeed everywhere, except in your portfolio.