(Bloomberg) -- Arm Ltd. Chief Executive Officer Rene Haas, gearing up for the biggest initial public offering of the year, is pitching investors on a pivot.Most Read from BloombergTrudeau Is Stuck in India With Faulty Aircraft After Hearing Criticism From ModiThe Mighty American Consumer Is About to Hit a Wall, Investors SayTesla and China Risk Leaving Volkswagen on a Road to NowhereTech Giants Power Stock Gains as Tesla Jumps 10%: Markets WrapMeloni Tells China That Italy Plans to Exit Belt and
His message to potential shareholders is that Arm is poised to become a bigger and more profitable business — not just because of the industrywide boom in cloud computing and artificial intelligence, but also due to a major change in how it operates.
Getting that message across is key to the lofty valuation — as much as $54.5 billion — that Arm is seeking in its IPO this week. That would be a big markup from 2016, when SoftBank Corp.’s Masayoshi Son bought Arm for $32 billion. To bolster the point that Arm really is a different company, the video presentation features endorsements from Nvidia Corp. Chief Executive Officer Jensen Huang and James Hamilton, architect of much of Amazon.com Inc.’s AWS hardware, among others.
When Son acquired Arm, his big push was to bring that same compatibility to the so-called Internet of Things. As more and more devices became connected, he reasoned, they’d need the kind of coherency around standards that made the mobile phone industry grow so quickly. Arm’s pivot is an attempt to take advantage of a shift that’s been brewing for several years. Some of the biggest technology companies have increasingly started to see the ability to make the fundamental components of their products and systems as a key competitive advantage.
While Arm might get paid low-single-digit dollars on a $30 main chip in a smartphone, the potential inside the kind of processor that’s at the heart of a cloud data center is much greater. In that kind of environment, chips can have more than a hundred computing cores, or mini processors, and Arm can charge more than a dollar per core.
When the chip business goes through changes, Arm is likely to invest more into research and development to gear itself up for opportunities. When it’s more stable, profitability will increase, he said.