Arm plans to transfer its Internet of things (IoT) related businesses, which it acquired in 2018, to SoftBank Group Corp., in order to focus on its core semiconductor intellectual property (IP) business.
Arm said in a statement that it intends to transfer its two IoT services group (ISG) businesses — the Pelion IoT platform business and Treasure Data — to new entities that would be owned and operated by SoftBank, in order to strengthen its focus on growth and profitability. Upon completion of the proposed transfer, Arm will deepen its focus on its core semiconductor IP business and expects to continue collaborating with the new ISG businesses.
“Arm believes there are great opportunities in the symbiotic growth of data and compute,” said Simon Segars, chief executive officer, Arm. “SoftBank’s experience in managing fast-growing, early-stage businesses would enable ISG to maximize its value in capturing the data opportunity. Arm would be in a stronger position to innovate in our core IP roadmap and provide our partners with greater support to capture the expanding opportunities for compute solutions across a range of markets.”
The transfer of the ISG businesses is subject to further board review, customary closing conditions, consultation with local staff representatives (where applicable) and, if approved, is expected to be finalized by the end of September 2020.
After being acquired by SoftBank in 2016, Arm has constantly been driven by its parent to drive more value from the wider IoT ecosystem. As Rajeev Misra, CEO of SoftBank’s Vision Fund said in 2018, “IoT requires an entire stack, not just the chip, and in order to make these investments, you need to sacrifice profits over the next three to five years.” With these greater expectations, Arm then acquired Stream Communications, and then Treasure Data for $600 million, and created the Pelion IoT platform in 2018, as part of the wider system sell (see Arm Confirms Treasure Data Buy, IoT Platform Offering), and with the hope that this derived more value than selling just the semiconductor IP.
The Pelion platform was hailed as the industry’s “first end-to-end IoT connectivity, device, and data management platform” to help companies deploy and manage IoT at scale. It combined the technologies from Treasure Data, Stream Technologies, and Arm Mbed cloud to provide businesses with a single-pane view of all of their IoT devices and data. Dipesh Patel, who was president of the IoT services group at the time, said, “The biggest theme we are seeing in IoT is complexity. It needs to be made simple.” Patel has this month changed his role to chief technology officer at Arm, presumably in readiness for the divestment of the ISG division.
We asked Arm about the rationale for the proposed re-organization to focus on the chip business. Did the wider ecosystem approach not go the way that Arm had expected? The spokesperson re-iterated the organizational changes would maximize Arm’s focus on growth and profitability. “If the proposed transfer is completed, we will deepen our focus on our core semiconductor IP business and accelerate the returns on our investments in client, infrastructure, automotive and embedded/IoT devices,” the spokesperson added.
In addition, Arm said, “We still believe in the symbiotic growth of compute and data. SoftBank is experienced in managing a portfolio of fast-growing businesses at an early stage. If the proposal goes ahead, Arm expects that both IoTP and Treasure Data will ultimately create great value for SoftBank, and they will continue complementing Arm’s core IP business.”
Clearly, as Misra pointed out in 2018, sacrifices to profits were were being made in the pursuit of the whole stack. The shift to focus on its core hardware IP business could be a boon for Arm. The experiment to move up the value chain was clearly challenging for a company whose roots and strengths are in hardware IP and tools. Maybe it was also a challenge to integrate businesses with the different cultures — hardware and software.
But a more likely reason for the divestment is to get Arm ready for its IPO, which SoftBank founder Masyoshi Son indicated last year would be within five years — in other words by 2024. Indeed, Arm would be more attractive for investors if it focused on what it does well and could return to profitability in its core business. In its mission to enable billions of intelligent connected devices wherever computing happens, Arm has to date said its partners have shipped more than 165 billion Arm-based chips, servicing a growing demand for computing with the proliferation of IoT, 5G and artificial intelligence (AI).