Why is 'ARM' Drawing Attention Ahead of Vice Chairman Lee Jae-yong's Visit to the UK?

Vice Chairman Lee to Visit UK This Month as Presidential Special Envoy to Secure Busan Expo
Will He Meet ARM, a Target for M&A?
ARM Has High Corporate Value but Acquisition Is Difficult... Qualcomm and Intel Plan Consortium

Lee Jae-yong, Vice Chairman of Samsung Electronics / Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Kim Pyeonghwa] Alongside Samsung Electronics Vice Chairman Lee Jae-yong's visit to the United Kingdom and recent discussions about his promotion to chairman, there is growing attention on merger and acquisition (M&A) prospects. The UK semiconductor intellectual property (IP) company ARM is at the center of this attention. ARM is so important in the semiconductor industry that it is often called the fabless company of fabless companies, leading to speculation that Samsung Electronics might pursue its acquisition. However, given the substantial funds required for the acquisition and concerns over monopoly issues, it is not easy for a single company to push forward with the acquisition. In the semiconductor industry, a consortium approach is emerging as an alternative.

Vice Chairman Lee Jae-yong Visits the UK to Promote the Busan Expo... Discussions on ARM Acquisition?

According to the presidential office and business circles on the 3rd, Vice Chairman Lee will visit the UK this month as a special presidential envoy to support the bid for the 2030 Busan World Expo. There is speculation that a meeting could be arranged after Liz Truss, the UK Foreign Secretary and a leading candidate for the next UK Prime Minister, takes office on the 5th (local time).

Business circles predict that Vice Chairman Lee might use this UK visit as an opportunity to discuss business with ARM, which is headquartered locally. As Lee prepares for his promotion to chairman, it is suggested that he might pursue M&A, his main strategic weapon, by advancing the acquisition of ARM.

Previously, after the late Chairman Lee Kun-hee of Samsung Electronics collapsed in 2014, Vice Chairman Lee took the helm of management and actively pursued M&A activities until the November 2016 political scandal. A representative example is the $8 billion (10.872 trillion KRW) acquisition of the US automotive electronics company Harman in 2016. Prior to that, Samsung had consecutively completed M&A deals including PrinterOn (mobile cloud solutions), SmartThings (Internet of Things platform), LoopPay (mobile payments), and Viv Labs (AI platform).

On the 1st (local time), Samsung Electronics Vice Chairman Han Jong-hee attended a press briefing before the opening of IFA 2022 in Berlin, Germany, and said regarding M&A, "There has been much progress" and "a significant portion is underway," which has increased the possibility of M&A. While semiconductor companies such as Dutch NXP and German Infineon have been mentioned as M&A targets, ARM has recently been highlighted following news of Vice Chairman Lee's UK visit.

NVIDIA logo image / Source=Reuters Yonhap News

NVIDIA’s Failed ARM Acquisition... "Consortium Acquisition May Be More Suitable Than a Single Company"

ARM is a UK semiconductor IP company established in 1990. It operates at an earlier stage than typical fabless companies. Since fabless companies cannot handle all aspects of semiconductor design, they purchase licenses from IP companies like ARM to obtain necessary design blueprints and pay royalties based on sales of products applying those designs.

ARM focuses on the design and licensing of key components such as mobile application processors (AP) and graphics processing units (GPU), which serve as the brains of smartphones. In particular, over 90% of the basic design of mobile AP products is based on ARM. This is why ARM counts major US semiconductor companies including Intel, Qualcomm, Apple, and NVIDIA, as well as Samsung Electronics, among its clients. As of the first quarter of fiscal year 2022 (April to June), ARM's revenue was $719 million (977.121 billion KRW), with royalty income accounting for 64%, or $453 million (615.627 billion KRW).

ARM's parent company is Japan's SoftBank. SoftBank acquired ARM in July 2016 for $31.4 billion (42.6726 trillion KRW) and put ARM up for sale in 2020. Due to ARM's strategic importance, NVIDIA entered a $40 billion (54.36 trillion KRW) acquisition bid that year, but the deal was halted in February this year due to antitrust concerns, opposition from competitors, and failure to obtain regulatory approval. This has led to the expectation that it will be difficult for a single semiconductor company, including Samsung Electronics, to acquire ARM.

In this context, a consortium acquisition approach is emerging as an alternative. Multiple companies participate in the acquisition to preserve ARM's independence while securing substantial acquisition funds. In fact, Cristiano Amon, CEO of Qualcomm, expressed interest in acquiring ARM in a May interview with the UK Financial Times and suggested that a consortium approach might be appropriate. He hinted at the possibility of partnering with Intel or Samsung Electronics. SK Hynix Vice Chairman Park Jung-ho also stated at the March SK Hynix shareholders' meeting that the company would consider a consortium acquisition of ARM. Intel has expressed a similar view.

Currently, after NVIDIA's acquisition was halted, SoftBank is pursuing an initial public offering (IPO) of ARM to recover investment funds. Recently, SoftBank considered listings on both the London Stock Exchange and the New York Stock Exchange but turned its attention to the US due to unfavorable conditions in the UK. SoftBank aims to list ARM on the NASDAQ by March 2023, targeting a corporate valuation of $50 billion to $60 billion (67.95 trillion to 81.54 trillion KRW). If the IPO proceeds, it is expected to become even more difficult for a single company to acquire ARM. Instead, stock purchases might become the method of investment. ARM plans to use the funds raised through the IPO to expand its portfolio from smartphones to automobiles, the metaverse, and data centers.

Meanwhile, on the 31st of last month (local time), ARM filed a lawsuit against Qualcomm and semiconductor design startup Nuvia in the Delaware District Court for breach of license agreements. After Nuvia designed CPUs based on ARM licenses and the license agreement expired, Qualcomm acquired Nuvia last year and applied Nuvia's CPU designs to its own products. ARM alleges unauthorized use of its licenses and has filed suit.

This content was produced with the assistance of AI translation services.