by Dan Mandell | 9/15/2023
Arm (NASDAQ: ARM) launched its IPO on Thursday (September 14th) with an initial price of $51, opened trading at $56.10, and ended the day at $63.59. This translated into a fully diluted valuation of roughly $67.9B while raising nearly $5B for SoftBank, still 90% owner of the company. Arm is the largest company to enter the public markets this year, which has seen a dearth of IPO interest amid economic uncertainty. However, the success of Arm’s IPO is indicative of its strategic importance in computing technology and a large component of Arm’s value and growth potential is in IoT, embedded, and mobile markets. Although competition is mounting from Intel and RISC-V, Arm is a significant player in these markets, of which many are forecasted to see strong processor device growth through the next several years.
Although market growth is set to be more muted for 2023, several Arm partners that are market leaders for embedded processors garnered significant growth in 2021 and 2022, such as AMD-Xilinx, MediaTek, Microchip Technology, NXP Semiconductors, Renesas Electronics, STMicroelectronics, and UNISOC. These Arm partners and a host of others cater to a fragmented landscape of computing requirements, form factors, technologies, and ecosystems. The embedded processor market spans a wide variety of industries and environments such as automotive, communications, consumer electronics, industrial automation, retail, transportation, and a variety of other industries. The wide range of Arm’s influence and share across different processor types exposes the company’s IP to several different high-growth markets.
Exhibit 1: Arm Embedded Processor Market Share & Unit Growth Forecast
|Embedded Processor Type||Arm CPU Architecture 2022 Unit Market Share||Arm CPU Architecture Unit CAGR (2022-2027)|
|Multiprocessing Unit (MPU)||22.7%||5.5%|
|Mobile System-on-Chip (MSoC)||96.7%||5.4%|
The total market for the embedded MPUs, MCUs, SoCs, and MSoCs totaled more than $80B in 2022 and several instances of Arm IP are being deployed alongside and separately from its CPUs. In particular, the embedded and edge AI market has been rapidly developing as a specialized subset of the broader merchant processor device market, with most vertical markets forecasted to grow at a revenue CAGR of 20%-30% from 2022-2027. Arm CPUs have long supported machine learning workloads in low-footprint MCUs on through many-core, heterogeneous SoC hardware for vision, voice, and vibration AI use cases. In addition, the company continues to expand its dedicated Ethos NPU IP for ML inference, Mali GPUs and Neoverse platform for high-performance compute workloads, all the while supporting other critical functionality for connectivity, interconnects, power control, and security.
Although Arm does face increasing architectural competition from Intel, RISC-V, and the in-house development capabilities of manufacturers, the costs of changing architectures for device makers is often prohibitive (due to hardware and software dependencies, supplier availability, etc.) and the company continues to make inroads in high-performance (and higher ASP and margin) processor devices. Arm’s strong market share in the embedded processor space, enabled by its market-leading device maker partners, will remain a key contributor to the company’s value and growth prospects moving forward.