I talked with Arm’s new CEO, Rene Haas, last night and we had a lot to talk about. Arm and NVIDIA have been in the news a lot the past few years with respect to the acquisition and we finally have some closure on a few items. While there has been a lot of rumors and spin out there, I want to give you the facts and provide my own thoughts on the news.
Last night, Softbank announced that:
- They have mutually agreed with NVIDIA to walk away from the acquisition
- Arm will IPO within SoftBank’s fiscal year that ends March 2023
For financial year ending March, 31, 2022, Arm is forecasted to generate a record $2.5B revenue and $900M in adjusted EBITDA
Coinciding with this news, Arm announced that CEO Simon Segars is leaving the company and Rene Haas is assuming the role as new CEO.
My jaw was on the floor after hearing all of this, but not for some of the reasons you might think.
Arm is actually very profitable
For years, I was under the assumption that while Arm had expanded into PCs, the datacenter, automotive and IoT, that it was a money-losing operation. When Arm was acquired into SoftBank, it was nearly impossible to know what was going on and this is typical with arrangements like this. Based on the financials announced today, it’s actually quite profitable. This was so important to me because I had assumed that a money losing company who was going public would never have the funds to keep investing at the same rate of investment and keep the PC, datacenter, auto and IoT expansion competitive. This changes my opinion greatly on a potential IPO. Arm wasn’t some sickly child that needed rescuing.
So now that we know Arm has a very lucrative business model, where would it go from here?
I think the three biggest areas of growth are the datacenter, PC and automotive.
Arm historically did well in the datacenter storage, networking and security appliance markets but had less than 1% server share. Arm, to its credit, invested in making many kinds of “big cores”, added Amazon’s AWS unit to the mix, Azure and Oracle via Ampere and I believe the company is on a steep trajectory. This includes the datacenter edge as well. It needs to look over its shoulder with RISC-V via Ventana Micro and, of course, X86 with AMD and Intel.
In PC’s, Apple’s M1 showed to everybody that Arm architectures could be efficient andpowerful enough for a PC if you put enough effort into it. While the M1 is a custom core based on an architectural license that doesn’t generate as much revenue as a full design, Arm is investing in its own PC-grade “big cores”. With Microsoft supporting Arm-based PCs, Arm doesn’t need to beat an Apple M-architecture core, it needs to get a lot closer to it. Between it and its partners is obviously Intel and AMD.
In auto, the electrification and added intelligence of future cars, combined with Arm’s newly ASIL-certified controllers and image sensors will drive growth. It doesn’t have to increase share here; it just needs to sell the full basket which is a much higher BOM content. Arm is important to many markets it is dominant in like smartphones and IoT but critical to competition in PCs, servers, edge servers, and automotive.
Let’s talk about leadership. I have known newly minted CEO Rene Haas for a decade, and I think he is smart, decisive, fair and a really good guy. I look forward to working more with him in the future. CEO-level and CEO-staff relationships are important to me and for my tech company and technology recommendations.
I will miss Simon Segars. I really liked him. Unfortunately, based on timing, I think people will automatically assume Segars was forced out. Based on people close to the company, I am told Simon left on his own terms. I believe this not out of naiveté but because I trust the sources who told me. In Arm’s press release, Segars said, “Arm has defined my working life, and I am very thankful for being given the opportunity to grow from graduate engineer to CEO. I’m very bullish on Arm’s future success under Rene’s leadership and can’t think of any anyone better to lead the company through its next chapter.” If anyone has met with Simon, I think you know, this is him speaking here.
It takes incredible energy to lead a company, it takes even more to do that while leading a protracted merger and it will take even more to get through the IPO process.
Netting it out
I already knew of the opportunities Arm had in PCs, datacenter servers, the edge server and automotive. I liked its tie up with NVIDIA to bring more competition to the PC and server markets. What I didn’t know until today was how profitable Arm was. This indicates to me that it can have the investment dollars to keep investing and to me, that should mean everything to its customers. And therefore, to its investors. An IPO won’t be a cakewalk; it never is, and I will be watching and analyzing every move.