SoftBank Chairman Son Jeong-eui arrived in Korea on the 1st. When asked about the purpose of his visit, he is known to answer briefly “business”. ‘Sales’ for the sale (share) of ARM, a world-class semiconductor design company owned by SoftBank, is analyzed as the biggest purpose.
Chairman Son is likely to meet Samsung Electronics Vice Chairman Lee Jae-yong. Vice Chairman Lee met with reporters on the way home from an overseas business trip on the 21st of last month and said, “Chairman Son will come to Seoul in October, and he will probably do some suggestions.” SoftBank also announced that it plans to discuss a strategic alliance between ARM and Samsung Electronics.
There is also mention of the possibility of a meeting with SK Chairman Chey Tae-won. SK Group is considering acquiring ARM. In March, SK Hynix Vice Chairman Park Jung-ho said, “I don’t think ARM is a company that can be acquired by one company.” Currently, global semiconductor companies such as Intel and Qualcomm are considering acquiring ARM.
ARM draws sketches of semiconductors
What kind of company is ARM owned by Chairman Son Jeong-eui and SoftBank, and why are global semiconductor companies salivating?
ARM is a British semiconductor company founded in 1978. Headquartered in Cambridge. It is often referred to as a ‘semiconductor design asset (IP) company’.
If semiconductors are compared to works of art, ARM is a company that draws sketches (design assets). Semiconductor companies such as Samsung Electronics, Apple, and Qualcomm receive a sketch from ARM and display their individuality on top of that to complete a (semiconductor) artwork. This is why people say, “Without ARM, semiconductor development itself is impossible.” In particular, it has strengths in mobile IP. AP designs and vendors for smartphones such as Samsung Electronics’ Exynos, Qualcomm Snapdragon, and Apple’s A series all rely on ARM.
ARM’s revenue stream is commissions. Instead of providing design assets based on patents, they receive royalties from semiconductor companies. As ARM is an unlisted company, its exact earnings are ‘undisclosed’. In 2017, when it was a listed company, it is known to have achieved sales of about 1.5 trillion won and an operating profit of about 260 billion won. According to the market research company Statista, ARM sales in 2019 are estimated to be around 2.1 trillion won, and sales in 2020 are estimated to be around 2.2 trillion won.
Nvidia pushed for the acquisition, but failed due to opposition from all countries
SoftBank Chairman Son Jeong-eui acquired ARM in 2016 for $32 billion. “As for Go, I made the biggest bet of my life, looking forward to the 50th move,” he said. However, as the corporate values of SoftBank’s investments, such as WeWork and Uber, fell, Son’s losses increased.
ARM was put up for sale, and Nvidia agreed to acquire it in 2019 for a value of $40 billion (2.15 million shares + $12 billion in cash) at the time. The purpose is for Nvidia, which has strength in GPUs, to enter the AP and CPU markets. However, the big picture of Jensen Huang was wiped out earlier this year as competition authorities in the US, UK, and European Union (EU) opposed Nvidia’s M&A. This is due to concerns that Nvidia’s acquisition of ARM will disrupt the competitive order in the market. This means that Nvidia will put pressure on competitors such as Qualcomm, Intel and AMD through ARM, which has a ‘public good’ character.
Currently, ARM remains a private company under SoftBank. Chairman Son Jeong-eui, who needs to recoup his investment, is known to be considering various scenarios such as selling some stake or selling all his shares when listing ARM on the US or UK stock market. much to do with this visit to Korea.
Independent M&A of Samsung Electronics is almost impossible
The interest of the semiconductor industry is whether Samsung Electronics’ ARM M&A will happen. In conclusion, it’s a situation where ‘even if you want to buy 100% of ARM shares, you can’t buy it’. It’s no different than Nvidia’s previous attempt to acquire ARM and then gave up. Samsung Electronics ranks first in memory semiconductors and second in foundries (semiconductor load production). It designs, manufactures and sells various system semiconductors such as APs such as Exynos and image sensors.
If Samsung Electronics wants to acquire Nvidia, which plays a de facto ‘public interest’ in the semiconductor industry, there is an analysis that competitors and competition authorities in each country cannot stand still. If companies A and B carry out an M&A, the competition authority (Fair Trading Commission) of the country in which companies A and B operate (the Fair Trade Commission) examines the ‘strictness of competition’ of the M&A and decides whether to approve or reject it. If even one country does not allow it, M&A between companies will be stuck.
A senior Samsung Group official recently analyzed, “It would be nice to be able to buy ARM, but will competitors and the US and China stay put?” and “In reality, M&A is impossible.”
A strategic alliance is likely through participating in an M&A consortium or acquiring small stakes
The second possibility is for Samsung Electronics to form a consortium with several companies and jointly acquire ARM. There will be less backlash than a stand-alone takeover, but it still needs to be ‘approved’ by review by each country’s competition authorities. In the industry, Chinese semiconductor companies are considered companies that must be included in the consortium. This is because the Chinese competition authorities have no reason to approve the acquisition of ARM by companies other than their own. However, when a Chinese company joins the consortium, it is not clear whether the FTC, the US competition authority, will approve the consortium’s M&A. This is because the United States, which is putting pressure on the Chinese semiconductor industry, has no reason to give wings to Chinese companies.
The third thing mentioned is the acquisition of part of ARM by Samsung Electronics. Since Samsung Electronics is also collaborating with ARM, there is no reason to delay in acquiring the stake. Strategic alliances are possible. In 2012, Samsung Electronics bought a 3% stake in ASML in the Netherlands, which makes critical equipment for very fine processes. He sold 1.5% in the middle, but by the end of June, he owns a 1.5% stake in ASML. It is worth 3.87 trillion won.
What is urgent is Chairman Mab Jeong-eui, time is on the side of Samsung Electronics
The important thing is how much will Chairman Son sell his share in ARM for? Given ARM’s market value (about 100 trillion won), even assuming a 3% share, it’s about 3 trillion won. Even if Samsung Electronics is ‘cash rich’ with more than 100 trillion won in equivalent cash, it is also noted that it is ‘wasting’ to spend ‘a trillion units’ to buy a minority stake in ARM. The emergence of the Risk Five architecture alliance (RISC-V) which stands on the opposite side of ARM and provides ‘free’ design assets (IP) is also evaluated as a factor reducing the attractiveness of ARM.
For this reason, there are also prospects that the meeting between Vice Chairman Lee and Chairman Son will literally be a ‘meeting’. What is urgent is Chairman Son Jeong-eui, whose financial structure is getting worse and worse, and Samsung Electronics has no reason to be in a hurry. A senior Samsung official said, “Time is on the side of Vice Chairman Lee and Samsung Electronics,” based on his personal opinion.
Correspondent Hwang Jung-soo hjs@hankyung.com
