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Arm, a British chip designer, faces challenges ahead of the biggest IPO of 2023

René Haas, chief executive of chip-design powerhouse HandThere are many masters to serve.

He reports to Masayoshi San head of softbankWhich owns Arm and plans to sell a share of the British company this week The largest initial public offering of the year, Officials in Beijing and Washington are also drawing attention to Mr. Haas amid the expansion chip trade warAs the UK Prime Minister, Rishi Sunak and others have unsuccessfully introduced the idea of ​​stock listing in the country.

And Mr. Haas will have to meet the demands of more than 200 companies that use Arm’s technology. The ten biggest – including Apple, Google, Samsung and Nvidia – are in talks for a stake in the highly anticipated Arm offering. artificial intelligence Drives explosive demand for more powerful chips.

“It is becoming more complex,” Mr. Haas said in a speech at a trade show in Taiwan in May. “I am an old man in this industry. I’ve never seen it like this.”

Few companies face as many geopolitical and business complexities as Arm, the creator of the most widely used computing architecture of all time. Its public offering, which is expected to begin trading on Thursday and value the company at about $52 billion, will signal Arm’s ability to meet those challenges and enter new markets. Arm’s performance will also weigh on the public listing market, which has been quiet for most of the year.

“There are a lot of companies to please and a lot of capital to please,” Jody Shelton, chief executive of the Global Semiconductor Alliance, a large trade group, said of Arm. Mr. Haas, he added, “has to play a diplomatic role, not only globally but also to customers.”

Arm is in a quiet period before its public offering, which Mr. Haas hopes will help it ring the Nasdaq opening bell in New York on Thursday.

Founded in 1990, Arm has for decades helped define how almost all mobile phones operate, despite having about 6,000 employees and annual revenues of less than $3 billion. Its technology has also spread to cars, sensors, supercomputers and countless other devices.

Unlike most chip companies, Arm doesn’t make or sell those silicon components. It essentially designs and licenses the blueprints for one of the most important parts of the chip – the processor core, which performs calculations and runs software programs.

They rely on a set of instructions developed by the electronic brain Arm, and programs like Google’s Android and Apple’s iOS operating systems use to perform basic operations on smartphones.

Companies typically design entire chips by having blueprints for the cores on the arm that handle other functions, which they can design or license. This means that many companies are keeping a close eye on Arm’s technical specifications and future plans.

“There are very different interests that have to be balanced,” said Art De Geus, chief executive of Synopsys, which sells software for designing chips with specialized chip cores and aims to invest in Arm’s offering. “For anything to be successful we all have to play very well together.”

Arm estimates that more than 250 billion chips using its technology have been sold since its founding in 1990. That’s when Apple and two partners founded what was originally called Advanced RISC Machines in Cambridge, England. Apple wanted low-power technology that could extend battery life in the Newton, its ill-fated personal digital assistant, which was discontinued in 1998.

“The company’s DNA was born out of building battery-powered products, and that sensibility still defines us today,” Mr. Haas said in a video presentation for Arm’s IPO roadshow.

Mr. Haas, 61, is the first American to run Arm, which still conducts most of the engineering in Cambridge. He grew up in a suburb of Rochester, NY, where his father was a Xerox research scientist and exposed him to the allure of Silicon Valley during childhood visits to Xerox’s research center.

After earning an electrical and electronics engineering degree from Clarkson University, Mr. Haas worked for a chip manufacturer and a start-up before a seven-year stint at the Harvard Business School. NVIDIAA leading provider of graphics and artificial-intelligence chips.

He joined Arm in 2013. After lobbying for changes in the China business, Mr. Haas was transferred to Shanghai.

In 2016, softbank bought arm For $32 billion, partly inspired by Mr. Sun’s ultimately unsuccessful idea of ​​selling services to help coordinate and distribute software to billions of devices equipped with Arm chips. Mr. Haas moved to London to lead Arm’s remaining business, and began pushing for changes there.

Among other things, they introduced licensing schemes with an annual subscription for a bundle of Arm technologies, reducing the need for repeated negotiations for individual products. Arm has also moved away from a long-standing practice of designing cores for smartphones and optimizing them for other applications. It now designs cores for new markets such as data centers and cars.

In September 2020, Nvidia reached an agreement to buy Arm From SoftBank for $40 billion. He the plan collapsed After 18 months of protests from regulators and customers. Mr Son chose Mr Haas to replace Simon Segars as chief executive in February 2022.

Standing at an impressive 6 feet 4 inches tall, Mr. Haas introduced new ideas with a collaborative style, associates said. “They’ve really changed Arm,” said Jensen Huang, Nvidia’s chief executive, in a Roadshow video.

With Arm in the middle of a tech supply chain and chip trade war, Mr. Haas is grappling with challenges, including slowing smartphone sales and questions about whether the company can play a bigger role in AI tasks in data centers.

The second comes from China, where Arm gets about a quarter of its revenue and the licensing work is done by Arm China, a company it does not control. The IPO prospectus said Arm faced a long-running battle with the leader of Arm China, who was ousted last year, but that payments and sales information from that company was sometimes late. .

Trade tension is also big. Sales of a powerful version of the Arm core for data centers have been hit by US and British restrictions on Chinese exports. Although Arm said it has worked around such limitations so far, the prospect of tighter regulations comes amid a number of China-related risks outlined in the prospectus.

There are also questions about Arm’s business model. Jim McGregor, an analyst at Tirias Research, estimates that Arm has historically negotiated with chip makers to receive upfront licensing fees, which can range from $10 million to $100 million depending on the technology involved, with The per-chip royalty itself can range from about $1 to $3.50.

But lower-cost alternatives have emerged, including RISC-V, a technology whose instruction set can be licensed for free.

Arm also faces a legal battle with a major customer, Qualcomm, a major supplier of mobile chips. Arm sued Qualcomm, saying it breached a licensing agreement in connection with its purchase of chip start-up, Nuvia. Qualcomm denied the allegations and plans to start offering chips developed by the former Nuvia team, emphasizing how more customers could just license the Arm instruction set and then design original processor cores.

Although Arm has entered data centers with chips designed by Amazon and Ampere Computing, a start-up, it has not yet experienced the kind of AI sales growth there that Nvidia has enjoyed.

Handel Jones, head of research firm International Business Strategies, said Arm’s biggest AI opportunity will be in phones, PCs and other so-called edge applications where devices require low power consumption.

“If Arm can play the role that Nvidia plays in data centers at the edge, that IPO valuation could be justified,” Mr. Jones said. “They’re still a long way from getting there.”

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