Due to robust demand, Arm's U.S. IPO subscription is set to conclude a day early on September 12, though the final IPO price is still anticipated to be confirmed on September 13.
Reports indicate that Arm's IPO has received subscriptions exceeding demand by tenfold. Bankers plan to cease accepting subscriptions by Tuesday afternoon, effectively ending the process a day ahead of schedule. Such early closures for IPO subscriptions are not uncommon and typically signify strong demand. Insiders project that by Wednesday, the offering could potentially see up to 15 times oversubscription.
However, nothing is set in stone, and the IPO subscription scenario remains fluid. Sources caution that commitments from some anticipated investors have yet to be finalized.
Previous documents revealed that ten of Arm's clients-including Apple, Nvidia, AMD, Google, Intel, MediaTek, TSMC, Synopsys, and Cadence Design-have agreed to be cornerstone investors for this issuance. They've expressed interest in purchasing up to $735 million in ADS.
Overall, the strong demand suggests that the highly-anticipated Arm IPO has garnered ample investor support, aiming for a fully diluted valuation of $54.5 billion sought in the IPO. Last week, Arm set its initial IPO price range at $47-$51 per share, translating to a valuation cap of $54.5 billion.
Last month, in a surprising move, SoftBank acquired a 25% stake in Arm from its Vision Fund, valuing Arm at $64 billion. The tentative valuation cap of $54.5 billion is notably lower than this figure. Some analysts believe that many investors initially proposed valuations between $60-$70 billion but have now reduced it to just over $50 billion, creating an atmosphere of high value-for-money for Arm, thereby boosting demand.
Informed sources reveal that given the strong demand, Arm is contemplating asking investors for a higher valuation, potentially exceeding $54.5 billion. Arm is discussing the possibility of raising the price range or maintaining the current range but setting the IPO price above this range on Wednesday.
However, since SoftBank aims to retain 90.6% of Arm's shares after the planned $5 billion IPO, Arm will not issue more shares due to increased demand.
Arm's listing is a significant event for the semiconductor industry and the otherwise stagnant IPO market this year. Arm's IPO is the largest globally this year. SoftBank acquired Arm in September 2016 for approximately $31 billion and took it private. SoftBank had previously agreed to sell Arm to Nvidia for $40 billion, but the deal fell through last year due to antitrust regulations, leading to Arm's current IPO.
As a dominant force in the semiconductor industry, Arm's chip architecture is used in 99% of smartphones worldwide. However, this also means that there's limited room for growth in this sector, especially considering the sluggish demand for smartphones during global economic slowdowns. This has been reflected in Arm's revenues, which have plateaued. For the fiscal years 2021 to 2023, Arm's annual revenues were $2.027 billion, $2.703 billion, and $2.679 billion, respectively, with net profits of $388 million, $549 million, and $524 million.
Last week, Arm informed potential investors that it holds only a 10% share in the cloud computing market, leaving ample room for expansion. By 2025, driven by AI, it's projected to grow at an annual rate of 17%. Additionally, Arm holds a 41% share in the automotive market, expected to grow by 16%.
Arm also shared with investors that the majority of its revenue, derived from licensing fees, has been on the rise since the early 1990s. The latest fiscal year's licensing fee revenue stood at $1.68 billion, up from the previous year's $1.56 billion.
