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Samsung and SoftBank Chiefs to Discuss Potential Partnership Involving Chip Designer Arm

A partnership between Samsung and Arm could help both companies weather a downturn in the semiconductor industry. Global chip sales are expected to grow 13.9% to $633 billion this year, according to a recent forecast from trade group World Semiconductor Trade Statistics.

September 22, 2022
10 minutes
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Samsung's de facto chief Lee Jae-yong and SoftBank Group Corp.'s Chief Executive Masayoshi Son are set to meet in Seoul next month to discuss a potential partnership involving chip designer Arm Ltd. This could become a powerhouse union between two of the world's semiconductor giants.

Mr. Son said on Thursday that he would be visiting South Korea to meet with Samsung Electronics Co. about a possible strategic alliance with Arm. This confirmation comes after similar remarks made by Mr. Lee the day before. Any major decisions made by the South Korean conglomerate require Mr. Lee's approval.

The nature of a potential partnership between Samsung and Arm is unclear, but such a tie-up would bring together the world's largest semiconductor company and the maker of the world's most ubiquitous chip-design blueprints.

This pairing would help Samsung branch out from its memory chip expertise into areas like logic-chip design, where Arm is very strong. Samsung is also one of the few companies that can manufacture the most advanced chips. This would give SoftBank more options for selling Arm, which it is planning to list on the stock market.
"I'm excited to visit Korea for the first time in three years. I'd love to talk with Samsung about a possible strategic alliance with Arm,” Mr. Son said.

A SoftBank spokeswoman confirmed Mr. Son’s travel plans. A day earlier, Mr. Lee had told reporters at a Seoul airport that the SoftBank CEO might visit Seoul in October to discuss an offer regarding Arm. Mr. Lee had just returned from a trip to the U.K., where Arm is based, and had been asked about the prospect of merger talks with the chip-design firm. The Samsung chief said he hadn’t met with Arm executives during the trip, where he helped promote the South Korean city of Busan’s bid to host the World Expo in 2030. Samsung declined to comment further beyond Mr. Lee’s remarks.

Mr. Son's announcement comes as SoftBank has been trying to spin off Arm for the past two years in an effort to raise cash from one of its most valuable holdings. After a planned $40 billion sale to Nvidia Corp. fell through due to regulatory concerns earlier this year, SoftBank has shifted its focus to a plan for a public listing some time in 2023.

Despite the recent decline in tech stock prices, demand for new IPOs remains high. However, the likelihood of a successful public offering for a highly valued company has decreased.

Mr. Son has made the listing of Arm a priority at SoftBank, pushing deputies to clean up and boost the business.

Since its acquisition by SoftBank in 2016, Arm has struggled to live up to the Japanese conglomerate's expectations. For years, revenue growth was stagnant, but things have started to improve in recent months thanks to new chip-licensing deals. In the fiscal year ended in March, Arm's revenue rose by 35% compared to the previous year, totaling $2.7 billion.

Arm is a key player in the global semiconductor ecosystem. Companies like Apple Inc. and Qualcomm Inc. rely on its design architectures for microprocessor chips that power the world’s PCs, smartphones and data servers.

A partnership between Samsung and Arm could help both companies weather a downturn in the semiconductor industry. Global chip sales are expected to grow 13.9% to $633 billion this year, according to a recent forecast from trade group World Semiconductor Trade Statistics. That represents a slowdown from an earlier projection for a 16.3% increase.

Next year, chip sales are forecast to grow by 4.6%, which is slightly lower than the earlier projected increase of 5.1%. This is according to estimates from the trade group.
Samsung operates a chip-design unit that mainly serves its own devices, such as its in-house Exynos mobile-application processor that goes inside some of the company’s smartphones. The South Korean firm is also making aggressive investments to improve its distant No. 2 position to Taiwan Semiconductor Manufacturing Co. in the contract chip-making, or foundry, business.

Given the antitrust concerns that thwarted Nvidia's earlier takeover attempt, it is unlikely that Samsung will buy all of Arm on its own, according to CW Chung, head of Asia technology research at Nomura. "The more likely scenario is that Samsung could seek to buy a portion of Arm," Mr. Chung said. SoftBank may first sell a partial stake in Arm to Samsung before pursuing an IPO for the chip-design firm, according to Mr. Chung. This would be one potential scenario for the company.

Samsung has a large amount of cash on hand, totaling 107.91 trillion won, or approximately $76.6 billion. This gives the company the financial resources to make a major acquisition, if it so chooses.

Since 2017, when it completed an $8 billion acquisition for the U.S.-based Harman International Industries Inc., the South Korean tech company has not made any major deals.

At an industry conference in September, Samsung co-CEO Han Jong-hee said that the company was "looking widely at M&A" and that it had achieved "lots of progress." He added that Samsung was open to all options in order to continue growing its business.

Jay Y. Lee, who is known as Mr. Lee in South Korea, is facing pressure from the government and the public to make a major business move. In August, Mr. Lee was pardoned for a 2017 bribery conviction, which was seen as a way to encourage him to help boost the nation's economy.

Other major semiconductor companies have expressed interest in purchasing a stake in Arm. Intel, Qualcomm, and South Korean memory-chip maker SK Hynix have all signaled their desire to join a consortium of partners to acquire Arm this year.

This article was contributed to by Megumi Fujikawa in Tokyo and Eliot Brown in London.

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