SoftBank wants to sell mobile chip designer ARM to offset losses from the company's other acquisitions, including Uber, WeWork and SpaceX competitor OneWeb. Chairman and CEO of Softbank Group, which has invested money in Uber, GM's Cruise, Sprint and Boston Dynamics, Masayoshi Son has previously praised his $ 34 billion acquisition of ARM on "The David Rubenstein Show: Peer-to-Peer Conversations ".
The news comes a month after Softbank agreed to sell roughly $ 20 billion in shares of mobile operator T-Mobile. Softbank planned to sell approximately 200 million shares of T Mobile, depending on the deposit.
So what exactly happened? Softbank was once as visionary as being able to spot a small Chinese startup called "Alibaba" and turn it into the global e-commerce giant we know now. Here is an overview of the events that have happened so far.
Softbank Sells ARM: WeWork or Masayoshi Son to Blame?
Masayoshi San wanted to create a venture capital fund that would invest in emerging startups to make them profitable. Softbank's venture capital fund is called Vision Fund. This fund raised $ 100 billion, which was to be invested in high-level startups; WeWork was one of them. SoftBank's money pushed WeWork's valuation up to $ 47 billion. However, the valuation dropped significantly when WeWork finally went public and all of its balance sheets were down.
WeWork has gone from a valuation of $ 47 billion to a need for $ 8 billion in rescue funds. SoftBank reportedly pumped around $ 18.5 billion in cash into WeWork, but the company burned it all down. To put it simply, WeWork received too much money, too quickly, without a proper plan of how to spend it and, most importantly, how to make a profit.
But that was the ultimate goal of the $ 100 billion Vision Fund. It is investing in high-growth, high-risk startups at an alarming rate so that they can outsmart their competition and quickly go public to generate a financial return. In addition, of the $ 100 billion, Softbank raised $ 25 billion on its own, $ 60 billion was donated by Saudi Arabia and Abu Dhabi, and the rest came from the company's electronic partners, Apple and Foxconn. The company has raised around $ 40 billion of the fund's funds via a loan with an annual interest rate of 7%.
Surprisingly, of the 88 companies in which SoftBank has invested, ARM is among the most profitable. He made a profit of $ 125 million in the last three months of 2019.
The problem here is that the $ 100 Vision Fund was supposed to pump money into high-profile startups for four years. But Masayoshi San burned all the money in half. It's obvious SoftBank is struggling, which is why Mr. San wants to sell one of his crown jewels, ARM Holdings, to raise funds.
Who will buy ARM?
ARM does not make mobile chips on its own. Companies that sell chips, Qualcomm, Apple, etc. use designs and blueprints provided by ARM to manufacture their custom chips. Basically, every mobile platform on the planet uses defined ARM instructions to perform its operations. Simply put, the company that owns ARM has unparalleled power in the tech world.
There is no other company like ARM on the planet, so the thought of another monopolistic tech giant like Google or Apple to acquire them is enough to scare governments, let alone a tech journalist like me. Softbank might be dumb enough to invest in a hipster CEO, but at least it's not Google or Microsoft.
The next neutral house for ARM Holdings appears to be Nvidia. There is no direct competition between Nvidia and ARM. Nivida's portfolio includes data centers, GPUs, and autonomous chips for cars. But the acquisition is still the subject of speculation for the moment.
Will SoftBank end up selling ARM or making it public? Only time will tell. On the David Rubenstein Show, Masayoshi San praised ARM and said, "The chip is everywhere, in the car, in the refrigerator, everywhere." You are telling the truth, Mr. San, Chip is indeed everywhere except in your wallet.
