I studied computer science in ARM’s hometown of Cambridge almost 20 years ago. I vividly remember my heart missing a beat at the moment I suddenly and fully appreciated the elegance of “RISC architecture,” ARM’s approach to microprocessor design.
At that time, I would guess less than 1% of the population had heard of the company. Even today, I imagine over 80% of the people commenting on the company’s acquisition by Softbank have no real grasp of the difference between RISC and CISC, but let me make it easy for you: It was, and still is, genius. In its own microscopic way, it is a British engineering feat as awe-inspiring as any creation of Brunel, Whittle, Stephenson, Lovelace, or Bell.
Given that backdrop, when I first read the headlines that the company was being sold, I was undeniably depressed. We don’t have many true global technology giants in the UK and, after my friend and mentor Mike Lynch sold Autonomy to HP a few years ago, ARM was pretty much all that was left. To see it “go” felt like a retrograde development for British technology. Indeed, the vast majority of the press and analytical coverage has jumped on that bandwagon.
The prevailing view is that the Brexit-driven slump in the pound has allowed a national treasure to “fall into foreign hands.” As the smoke clears, however, I find myself rigorously rejecting this view. While there is plenty of nuance in this topic, let me offer three simple rebuttals of the key arguments of the naysayers, and one positive thought on why this could be a hugely positive development.
ARM was not British-owned anyway
ARM is a publicly listed company. As it grew to the £20 billion behemoth it is today, shareholders changed frequently. In the most recent shareholder list I could find, amongst the top 15 shareholders only three were British. Now the real picture is more complex – global, US-based fund managers like Blackrock and Capital Group have plenty of underlying UK shareholders – but the idea that ARM was somehow a national treasure owned by the nation is completely false. It was a global company before; it is a global company today.
The Brexit discount is over-stated
ARM’s last share price before the deal was announced was £11.89; the day before Brexit it was £10.19. That’s an 8.5% increase. A pound bought $1.48 on June 22, and on July 15 the same pound would have bought you $1.32 – a 12% decrease. Mr Market is smarter than you and me. A UK cost base and global revenues meant that ARM had recovered most of its “Brexit discount” before any deal happened.
Softbank is a fantastic owner
Softbank is a fantastic owner for a company like ARM because it is a long-term, growth-oriented, financial owner. Let me explain each qualifier.
Unlike its previous public market shareholders, ARM now has a long-term shareholder. Instead of having to hit every quarterly number, the company can now build for the long term. In the long run, this helps companies become more strategic, and more valuable.
Secondly, Softbank is growth-oriented. CEO Masayoshi Son invests in companies that will grow and, eventually, be sold at a profit. He is not a bottom-feeding, cost-cutting, financial engineering private equity suit; he is a futurist, a believer who grows the bottom line by investing in the top line rather than making cuts.
Finally, and most importantly, Softbank is a financial owner, as opposed to a strategic, technical owner. ARM is a “Switzerland business,” in other words, it benefits from retaining neutrality. This is because it sells its designs to all of the major platforms (Google, Apple, Intel, Samsung), and therefore if any of them had bought the company, the longer-term strategic relevance of the business would have been dramatically undermined. Moreover, a strategic buyer would have heavily integrated the company with their own, moving the key jobs to their own headquarters, decreasing investment in the long run, and getting bogged down in strategy that matters to just that one player rather than looking at the whole world of opportunity. In contrast, Softbank is entirely aligned with making ARM as big a success as it can possibly be.
Success begets success
Ask anyone in technology why Silicon Valley (despite being expensive, densely populated, and highly taxed) remains stubbornly the best place in the industry, and their answer will include that vaguest and most unhelpful of terms, “ecosystem.” What is an ecosystem? How do you get one?
The simple lesson from Silicon Valley is that an ecosystem is what happens when you have generation upon generation of companies in the same place. Just like good crop rotation, you need to harvest each generation to make space for the next, but some of that harvest falls back into the soil, providing the fertilizer. In the case of technology companies, the green shoots of new entrepreneurial ideas are enriched by the expertise, early stage investment, and mentoring offered by the previous generation.
This will happen with ARM. Senior people will invest in the next generation; junior people, inspired by the success of previous companies, will set out their own stall. From a single mighty oak, many acorns will fall. Given what that A in ARM originally stood for, that feels rather fitting.