Arm is a company you may not have heard of, but you probably—make that almost definitely—depend on the technology it develops in your daily life.
“We are quite ubiquitous in that we’re in devices that touch about 70% of the world’s population,” CFO Jason Child said in a recent interview on Morning Brew’s After Earnings podcast with hosts Ann Berry and Katie Perry.
Arm, which designs software for the chips that power all sorts of electronic devices, went public in September 2023. Child talked with Berry and Perry about the benefits of having a well-resourced majority shareholder, its business model, and the future of the semiconductor business.
SoftBank, hard money. Japanese investment holding company SoftBank owns about 90% of Arm. This means Arm has a “relatively small” market float, Child noted. With a market cap of approximately $145 billion, this amounts to roughly $18 billion available to public investors, he said.
While having one investor owning the vast majority of shares might make investor relations easier, Berry asked Child whether he saw a conflict between SoftBank’s position as a majority shareholder and “what perhaps might be optimal for public shareholders,” particularly around SoftBank CEO Masayoshi Son’s vision for artificial intelligence.
At SoftBank’s annual shareholders meeting this summer, Son predicted that AI that’s 10,000 times smarter than humans will arrive in a decade, according to CNBC. He also said that “his sole purpose in life is to pioneer the era of artificial superintelligence,” CoinGeek reported. As if to underscore how serious Son is, media outlets recently reported that SoftBank plans to invest $500 million in OpenAI.
Child said he sees Arm’s close connections with SoftBank and Son—who chairs Arm’s board of directors, by the way—as an asset.
“Because of his ability to raise capital and…his connections with some of the largest investors [and] some of the largest companies in the world, it’s actually helpful,” Child said of Son. “I would think of us as being a key piece of his overall strategy.”
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Child added, “With our connection to SoftBank, we have access to, I think, a broader range of investors, a broader range of other companies that are part of the SoftBank portfolio that we could work with.”
Making music. Child said last year’s IPO and investor roadshow “was a great chance for us” to explain to prospective investors how Arm’s business model works. The company sells its designs to customers, making the revenue it generates from licenses just the starting point. The company then gets royalties for the products that its customers make using its designs, he told us.
According to Berry, some onlookers had expressed concern around the time of Arm’s IPO that the company was relying on royalties for chip designs as much as 20 years old. While those designs aren’t old enough to drink legally, two decades is ancient in the technology sector. But Child characterized it as a strength.
“When you look at…royalties, you’re mostly looking at products that have all been developed in the past, and we’re developing and actually receiving royalties on products that, as you said, go back a couple decades,” he said, “which, from a CFO’s perspective, that’s fantastic.”
Child likened the business model to making music, “where, when an artist has a hit, and that hit goes on for 30 years, you keep getting paid royalties on it.”
Challenge or opportunity? Berry asked for Child’s thoughts on tech’s heaviest hitters getting into the business of chip design and manufacturing. Media outlets reported earlier this year that OpenAI’s Sam Altman was raising money to get into the semiconductor business. Microsoft is also introducing its own custom chips.
Child said Arm has relationships with many of the major tech companies already, and that chips from Google and Microsoft incorporate Arm designs. The ongoing task for Arm, then, is to “work closely to make sure that we’re providing the types of solutions that are going to address the technology and needs that they see going forward.”