ARM Desired by Leading Global Semiconductor Companies, What Kind of Company Is It? [Semiconductor M&A]

④ 95% of Global Smartphones Use ARM Semiconductor IP
Acquired by SoftBank in 2016
Deal with NVIDIA Failed in 2020 Due to Regulatory Opposition
Samsung Electronics Likely to Acquire Shares

[Asia Economy Reporter Han Yeju] Lee Jae-yong, Vice Chairman of Samsung Electronics, has expressed his intention to acquire the British fabless (semiconductor design) company ARM, which has a business structure completely different from that of typical semiconductor companies.

ARM provides design blueprints for CPUs of computers and AP chips, known as the brains of smartphones, and earns revenue by charging license (royalty) fees for them. Major semiconductor companies such as Samsung Electronics, Apple, and Qualcomm all purchase ARM’s design blueprints and modify them to fit their own specifications. Approximately 95% of the world’s smartphones use semiconductor IP designed by ARM. More than 500 semiconductor companies worldwide have adopted ARM’s semiconductor design assets (IP). To date, over 230 billion chips have been produced based on ARM designs, and as of last year, ARM’s technology royalty revenue increased by 20.1% compared to the previous year. This is why companies like Samsung Electronics, Intel, Qualcomm, and SK Hynix are keenly interested in ARM.

This business structure has been established over 40 years since the company’s inception. ARM’s predecessor was Acorn, a PC manufacturer founded in Cambridge, UK, in 1978. ARM was a joint venture created in 1990 by Acorn, Apple, and VLSI to jointly develop CPUs. Even as Acorn closed in 2001 due to Intel’s dominance, ARM survived. Due to the nature of the licensing business, ARM was able to operate with relatively few employees and minimal expenses.

SoftBank Chairman Masayoshi Son recognized ARM’s growth potential early on. In July 2016, he acquired ARM for ?24.3 billion (approximately 36 trillion KRW). At the time, Son was reported to have said, “It was the biggest bet of my life, looking 50 moves ahead in the game of Go.” However, conflicts later arose between Son and ARM. Son demanded the production of proprietary semiconductors to diversify revenue, but ARM insisted on maintaining its existing business model of providing only semiconductor design IP.

As financial difficulties worsened due to the Vision Fund’s investment failures managed by SoftBank, Son eventually decided to sell. In 2020, he attempted to sell ARM to Nvidia, a leading US graphics processing unit (GPU) company, for $40 billion (approximately 56 trillion KRW). However, regulatory authorities in the US, UK, and European Union (EU) all opposed the deal, causing it to collapse. At that time, companies including Samsung Electronics, Intel, AMD, and Qualcomm expressed concerns that ownership of ARM by a single company could disrupt the stable supply of mobile semiconductor IP.

After the deal fell through, SoftBank shifted its strategy from selling to an initial public offering (IPO) of ARM. Meanwhile, Intel CEO Pat Gelsinger, SK Hynix Vice Chairman Park Jung-ho in March, and Qualcomm CEO Cristiano Amon in May all announced intentions to jointly acquire ARM. Vice Chairman Park stated, “We are pursuing a joint acquisition because we will not allow any one company to monopolize ARM in the semiconductor ecosystem.”

This is also why there is speculation that Samsung Electronics might form a consortium to acquire ARM rather than acquiring it alone. Especially as the global semiconductor supply chain crisis has intensified recently, governments worldwide have increasingly regarded semiconductors as critical strategic security assets. Consequently, opposition to ARM’s technology falling into the hands of a single company has grown, lending weight to this outlook. However, concerns have been raised that differing opinions on business competitiveness and other matters could diminish the acquisition’s effectiveness.

Accordingly, Samsung Electronics is expected to participate in the acquisition by acquiring a partial stake in ARM. Currently, SoftBank holds 75% and the Vision Fund holds 25% of ARM. Chairman Son is also expected to propose a stake investment plan to Vice Chairman Lee. Some interpret that since Son is placing more emphasis on an IPO than a sale, he might request Samsung Electronics’ participation in the stake during the meeting with Vice Chairman Lee and use it to generate excitement for the listing. Vice Chairman Lee, after returning from an overseas business trip on the 21st at Gimpo Business Aviation Center, said, “Chairman Son will come to Seoul next month. I think he will make a (acquisition) proposal then,” signaling that discussions related to the ARM acquisition will intensify.