Glimpse Into $32 Billion SoftBank-ARM Deal Offered by Pokemon Go

The fact that chip technology has a long way to go is reminded every time a Pokemon Go fan drains a smartphone battery chasing virtual monsters.

UK based ARM Holdings Plc dominated about 85 percent of the chip market and it has built a business designing chips that squeeze the most out of limited battery capacity on mobile devices and further, it is also poised to push the boundaries of mobile computing.

Now, $32 billion is being spent to buy ARM, gambling that the company’s chips will find their way into self-driving cars, virtual-reality devices and machines with artificial intelligence, by Masayoshi Son who built SoftBank Group Corp by making big, early bets on personal computers, broadband and smartphones.

The limits and capabilities of their smartphones is now being shown by Pokemon Go, the hit game that relies on power-hungry GPS and camera functions to work.

“ARM holds licenses to core technologies, so Son is effectively taking control of the roulette table. It would be interesting to see how his thinking will impact ARM’s strategy going forward,” said Yoshihisa Toyosaki, an analyst at Architect Grand Design, an electronics research and consulting company in Tokyo.

This is an investment in the future of connected devices, also known as the Internet of Things and this is being used by Son as a justification for the company’s biggest-ever acquisition which will go beyond smartphones.

Son is wagering that silicon designed by ARM would help run the connected thermostats, washers and watches to the web – a market that is being eyed by Apple Inc., Google, Samsung Electronics Co., General Electric Co. and other tech giants.

“With augmented reality suddenly becoming a hot topic after the Pokemon Go boom, graphics capabilities of mobile handsets are going to another level. ARM looks nicely positioned to land a good chunk of that market’s growth,” said Amir Anvarzadeh, Singapore-based head of Japanese equity sales at BGC Partners Inc.

The chips produced by ARM found their way into 15 billion devices in 2015, including televisions, medical equipment, cars and internet-connected home appliances — as well as every iPhone and Samsung Galaxy smartphone as the company focuses on small, low-power devices and doesn’t actually make semiconductors but licenses its designs instead.

According to IHS Markit, SoftBank and ARM’s fortunes are already intertwined in several markets. While ARM is expanding into wearables, infrastructure and smart home and automobile applications, Son’s company operates wireless networks in Japan and the U.S. and has investments in robotics, energy and internet startups.

Bottom of Form

“SoftBank’s investment in ARM might not only be paid back by further growth in ARM, but also help protect the company’s other investments and drive future investment strategies. The company represents a crucial piece of technology that is in virtually all of the technology markets guiding the ‘Information revolution’ at the core of SoftBank’s vision,” IHS Markit analysts Tom Hackenberg and Lee Ratliff wrote in a report.

Atul Goyal, an analyst at Jefferies Group says that SoftBank’s deal doesn’t mesh with SoftBank’s investment strategy set out by former President Nikesh Arora.

“Some of the devices that he’s talking about, refrigerators and houses and all that stuff, also require steel, which in turn requires iron. You can stretch the logic any which way,” Goyal said.

As SoftBank shares slumped 10 percent to 5,387 yen on Tuesday, their biggest decline since 2012, some of the company’s investors appeared to share that view.

One fact however remains that an ARM-based chip will be crucial to making IoT work, regardless of whether an entirely new gadget or a groundbreaking business such as Uber Technologies Inc. or whether there’s another Pokemon Go hit.

“I believe IOT will be such a big opportunity for all mankind and for all the products in the consumer world. The key is to make moves that five, 10 years down the road will seem obvious,” Son said at a press conference in London Monday.

(Adapted from Bloomberg)


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