Neither Samsung nor Apple will buy Arm from SoftBank

Samsung Electronics Vice Chairman Lee Jae-yong, left, and SoftBank CEO Masayoshi Son, right, arrive at the Korea Furniture Museum in Seoul, in this July 4, 2019, file photo, to attend a dinner with the leaders of Korea's conglomerates. / Yonhap

By Baek Byung-yeul

Speculation has arisen that either Samsung Electronics or Apple may consider acquiring British chip-designing firm Arm, but an influential industry analyst expressed his doubts saying neither of the two IT giants will be interested in purchasing the company, which was put up for sale by its mother company SoftBank in Japan.

Jim Handy, a U.S.-based renowned semiconductor analyst guru working for Objective Analysis, said Samsung and Apple won't try to acquire Arm, the world's leading company in mobile chip architecture design, given the merger and acquisition deal is expected to amount to over $40 billion, which is too costly.

"It's hard to tell with Samsung. The company rarely acquires other companies, and the ones that I recall were all very small. Arm would be bigger than usual," the analyst told The Korea Times in a recent email interview.

SoftBank is reportedly considering either selling its chip-designing affiliate Arm or going through with an initial public offering for the unit. This is because the Japanese tech giant is strapped for cash after its $100 billion Vision Fund recorded losses for two consecutive quarters, hit by the pandemic impact on the global economy. In an effort to offset the investment losses, SoftBank has said it plans to sell off up to $41 billion in assets.

Some industry analysts have put up Samsung or Apple as potential suitors for Arm, which licenses its mobile chip architecture design to other companies, but Handy said the two companies won't look at intellectual property (IP) licensing business because they have used their IPs to help mitigate risks and avoid rises in costs.

From that standpoint, the analyst presumed Arm will be acquired by a consortium led by fabless companies or intelligent system design companies such as Rambus, Cadence and Synopsys. The rationale for that is because these firms are generating revenue by licensing their IP to other companies, which is exactly what Arm is doing.

They may try to form an association to join the acquisition race, expecting to create a synergistic effect in their licensing businesses.

"It is also unlike Samsung to license IP to other companies. Samsung's IP strategy is mostly defensive: They get patents so that they can defend themselves against other companies who try to use their patent portfolios against Samsung. Samsung usually tries to develop all of its IP internally," he said.

"Apple is very similar. Usually Apple buys small companies for their IP but does not license that IP to others the way that Arm does. So I find it hard to understand why either Samsung or Apple would want to acquire Arm."

Mobile application processors chips are used in most smartphones, and Apple's A-series, Samsung's Exynos and Qualcomm's Snapdragon chips are based on Arm's architecture. Every chipmaker using the architecture pays a licensing fee upfront, which depends on the complexity of the design, and royalties, which Arm receives for each chip sold.

Some concerns are either Samsung or Apple would experience an increase in their licensing fees if one of their competitors succeeds in acquiring Arm, but the analyst said the two companies can afford it.

"Consider what happened in the cell phone business. Motorola and Nokia were very big brands before smartphones became popular. Microsoft acquired Nokia's mobile business and Google acquired Motorola's mobile business. Neither Samsung nor Apple wanted to acquire these companies, and you know that they could have afforded to," Handy said.

Regarding any potential suitors for Arm, the analyst said IP licensing firms will be strong candidates.

"Companies that have synergies with Arm would include IP licensors. Rambus, Cadence, and Synopsys come to mind. Qualcomm does too, but to a lesser extent. I don't think that a software firm like Microsoft would be a good complement," he said.

Given Samsung's ample cash-equivalent assets, it is seen as one of the potential suitors to purchase Arm independently or indirectly. As of the first quarter of this year, Samsung's internal cash and cash-equivalent assets stood at 97.53 trillion won ($81 billion).

Despite the analyst predicting the possibility of Samsung pursuing the chip designer is slim, chances are still there that Samsung may join with other chipmakers including Qualcomm, MediaTek and Huawei to acquire controlling stakes in it. Given the ongoing trade conflict between Beijing and Washington, if Huawei participates in a possible consortium for Arm, then Washington may sanction it.

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