As you know, the British Holding Arm filed an application for a public offering of shares in the United States this week, and representatives have studied the 330-page investment prospectus Bloomberg were able to identify risk factors associated with the high dependence of the arm business on the Chinese market from all related information.
According to the source, the relevant risk factor description in the ARM prospectus was more than 3,500 words. Officially, Arm made 24% of its sales in the Chinese market last fiscal year. It is an independent division of Arm Technology Co., with which the UK holding company has established business relationships and which accounted for 24% of Arm’s total sales last fiscal year. The British holding company itself and the Japanese parent company SoftBank do not control Arm Technology in any way.
Instead, SoftBank controls about 48% of the Arm China division, with which the British holding company has a difficult relationship, in the history of which there is even an episode of office robbery by the rebellious CEO of this structure. The bulk of Arm China’s stock is owned by Chinese investors, including companies associated with former CEO Allen Wu. According to British holding company officials, Arm’s access to the Chinese market will largely be determined by the nature of its relationship with Arm China.
In addition, US sanctions limit the ability of Arm’s Chinese customers to purchase advanced processor architectures, and therefore the structure of local demand will gradually shift to a less profitable price bracket, resulting in a decline in overall sales. This year, the situation has been exacerbated by the slow recovery in smartphone demand in China.
In fact, even Arm’s major international customers are heavily dependent on the Chinese market, so risks remain in that regard as well. Apple generated 19% of all sales in China last year, Qualcomm a whopping 64% and MediaTek 80%. Collectively, Arm’s top five clients account for 57% of the UK holding’s revenue, including rebellious Arm China. Such a concentration of sales entails more risks than distribution over a large number of customers. Arm’s management expects sales to drop toward China, and the past fiscal year has already shown such momentum. As such, it is very difficult to anticipate Arm’s maximum capitalization given the current combination of macroeconomic and geopolitical conditions.