Samsung lukewarm on Arm IPO, questioning valuation

Samsung Electronics Co. is not keen to invest in SoftBank’s British chip design unit Arm, the valuation of which seems too high, according to industry sources on Wednesday, in response to a media report that Samsung will invest in Arm when it goes public next month.

Earlier in the day, Nikkei Asia reported that Arm will float its shares on the Nasdaq in September at a market value of more than $60 billion, twice its valuation in 2016, when SoftBank acquired 100% of the chip designer.

The daily said that leading global chipmakers, including Apple Inc., Samsung Electronics, Nvidia Corp. and Intel Corp., will invest in Arm as soon as the company is listed on the market. Arm will sell them stakes of a few percent each, it added.

But Samsung, the world’s largest memory chipmaker, shrugged off the report, the sources said.

The South Korean company is skeptical about Arm’s valuation, at which buying a 2% stake would cost at least 1.6 trillion won ($1.2 billion).

Based on the valuation, Arm’s shares will likely be traded at about 22 times its revenue. The multiple is sharply higher than those of its peers in the semiconductor industry. Qualcomm’s price-to-sales ratio is 2.97, while those of AMD and Broadcom stand at 7.75 and 10.97, respectively.

Also, from Samsung’s perspective, minority ownership of Arm has no merit because it will unlikely lead to cutting its royalty payments to the British company.

SoftBank’s Vision Fund, led by Masayoshi Son, acquired 100% of Arm for $32 billion in 2016.

In 2020, it had tried to sell the company, in financial distress at the time, to US chipmaker Nvidia for $40 billion, but the deal collapsed. Since then, it had sought to take Arm public.

In September of last year, SoftBank's Son was quoted by Bloomberg News as saying: “I want to discuss a strategic alliance for Arm with Samsung.”

Arm develops design data, or the blueprint for fabless semiconductors. It controls 90% of the chip design market for mobile application processors, the brain of smartphones. Qualcomm Inc. and Samsung’s system LSI division are among its clients.

For fiscal year 2021, it raked in $1.5 billion in royalties, slightly less than half its sales of $2.7 billion.

The rise of Arm’s potential rivals also reduces Arm’s attractiveness as an investment target.

A growing number of startups now offer free and open-source RISC-V platforms to design and manufacture chips, which could replace Arm’s patented technologies.

Leading South Korean manufacturers are joining hands with Tenstorrent Inc., a leading RISC-V chip designer, to co-develop artificial intelligence chips.

The Toronto-based startup, led by legendary chip architect Jim Keller, recently raised a combined $100 million from Hyundai Motor Group and a fund led by Samsung Electronics.

“Chairman Son might be on edge, but there is no urgency for Samsung Electronics,” said a semiconductor industry official.

“If they come up with attractive terms, Samsung will consider buying a stake (in Arm).”

Write to Jeong-Soo Hwang at hjs@hankyung.com

Yeonhee Kim edited this article.