Date
26 May 2017
Masayoshi Son believes ARM will deliver huge rewards to Softbank in the future, but the markets don’t seem to share the enthusiasm, for now. Photo: Bloomberg
Masayoshi Son believes ARM will deliver huge rewards to Softbank in the future, but the markets don’t seem to share the enthusiasm, for now. Photo: Bloomberg

Why investors aren’t too excited about Softbank’s ARM buy

The ongoing operating difficulties and poor performance of Sprint, one of Softbank’s big acquisitions in recent years, is probably one reason why investors do not share Masayoshi Son’s enthusiasm over his latest mega deal.

Son, the founder and CEO of tech giant Softbank, announced last month that he will be spending US$32 billion to gain control of UK chip design firm ARM.

It marked the Japanese tycoon’s biggest purchase to date.

For those who believe in Son’s vision, the ARM acquisition will be potentially very rewarding for Softbank, though the pay-off may take some time.

They point to Son’s successes in the past with regard to investments. For instance, the tycoon saw Alibaba’s potential when the Chinese firm was still an upstart.

An investment of US$20 million in the e-commerce firm is now worth many billions. Son acquired Alibaba stake in 2000 and hasn’t sold any shares until 2016.

ARM sells chip design and charges royalties by units. Each year, about 15 billion of chips shipped globally use ARM design. Still, Son thinks this is only the beginning.

The tycoon envisages a much bigger volume in 20 years time when internet of things (IoT) becomes the norm and chips could become part of every single gadget. By owning ARM, Son hopes to rule the roost in IoT, as the China Securities Journal noted.

Son was able to sell his Yahoo stake before it peaked out. His decision to sell some Alibaba shares and use the money to finance the ARM deal indirectly tells us what he thinks about the future of the two firms.

While Alibaba may still have room to grow, Son appears to think that the sky is the limit in terms of the applications potential of ARM products.

Well, only the future will tell whether the tycoon’s bet turns out correct.  

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RC

EJ Insight writer

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