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Bloomberg's Srinivasan on SoftBank Buying ARM Holdings (Audio) · Bloomberg Intelligence

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  Speaker 1: Charlie Pellett, and that's a Bloomberg Business Flash. This is
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  Speaker 1: taking stock with pim Box and Kathleen Hayes on Bloomberg Radio.
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  Speaker 1: Japanese internet and telecommunications conglomerates SoftBank Group. It's buying the
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  Speaker 1: UK based designer of the microprocessors that power your smartphone.
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  Speaker 1: At least more than of the world smartphones contain arm
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  Speaker 1: holding chips. It is a thirty two billion dollar deal,
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  Speaker 1: and the deal well, it's cements SoftBank's new strategy and
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  Speaker 1: the Internet of things, at least according to the company.
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  Speaker 1: Here to tell us more on En Trinevason, Senior Semiconductor
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  Speaker 1: and Hardware analyst for Bloomberg Intelligence. Of course, Bloomberg Intelligence
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  Speaker 1: businesses are terminal. Customers can access this function by just
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  Speaker 1: typing b I go on the Bloomberg on and thanks
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  Speaker 1: very much for being here. So tell me why is
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  Speaker 1: it really about the Internet of things? Why is Marcio
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  Speaker 1: Chi San of soft Banks spending thirty two billion for
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  Speaker 1: arm Holdings. This gives them an entry into the intellectual
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  Speaker 1: property of multiple devices in multiple in markets without the
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  Speaker 1: messiness of having to make hardware or having to make chips.
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  Speaker 1: Here you control pure intellectual property, You controller to the source,
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  Speaker 1: and you proliferate multiple in markets phones, tablets, auto networking gear,
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  Speaker 1: DVR players, and so on, including the Internet of Things,
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  Speaker 1: without having to make chips, without having to make hardware.
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  Speaker 1: In fact, if you were a chip maker or a
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  Speaker 1: hardware maker and had attempted to buy ARM, you would
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  Speaker 1: lose a lot of revenue from potentially your peers who
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  Speaker 1: are seeking to license ARM property. So this was a
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  Speaker 1: clean um acquisition from slightly outside of the food chain,
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  Speaker 1: and it makes a lot of sense. Makes a lot
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  Speaker 1: of sense? Does it make a lot of sense? And
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  Speaker 1: as much as they spent soft Bank spent what twenty
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  Speaker 1: billion dollars three years ago to purchase Sprint, is this
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  Speaker 1: going to give Sprint a leg up? The question is
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  Speaker 1: does it have a flexibility? Does it leave enough flexibility?
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  Speaker 1: From um SoftBank's perspective, both from our debt and equity
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  Speaker 1: side and massasan at the conference called this morning, suggested
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  Speaker 1: that Print Frint was a self sustaining entity and that
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  Speaker 1: he wouldn't have to put in more money in that
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  Speaker 1: direction and with um ARM he potentially gains a free
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  Speaker 1: casual producing assets. So potentially he could reap some of
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  Speaker 1: the gains here and allows him some flexibility to invest
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  Speaker 1: in other places. Although he contended that that was not
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  Speaker 1: his name. What about the actual purchase price thirty two billion?
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  Speaker 1: This this wasn't a cheap acquisition by any stretch, but
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  Speaker 1: given its edition within the industry, it's one or maybe
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  Speaker 1: five clean players who have this kind of a position
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  Speaker 1: in the chip business. Um, you knew that the price
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  Speaker 1: was going to be high and a premium was certainly
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  Speaker 1: going to be extracted, and that is the case here.
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  Speaker 1: And you mentioned that this company Arm Holdings, it does
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  Speaker 1: not manufacture microprocessors, It just designs them correct. So what
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  Speaker 1: they do is they produce basic building blocks. I think
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  Speaker 1: of it from a lego structure. I produce blue, green, yellow,
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  Speaker 1: um building blocks, and you can then take that and
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  Speaker 1: build whatever structure you want. You can use them as
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  Speaker 1: this chances how you may not be able to differentiate
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  Speaker 1: your product as much, but then you can make your
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  Speaker 1: grand castle in the sky and have it be dramatically
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  Speaker 1: different from your competitors product. And it licenses designs right,
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  Speaker 1: the licensing almost the blueprints correct. So one part of
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  Speaker 1: their business is you take a license and you build
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  Speaker 1: stuff based off of their building blocks. The second part
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  Speaker 1: of their revenue, which is a bigger poor the revenue
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  Speaker 1: quite frankly comes to to three years later when you
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  Speaker 1: actually ship the product and it becomes popular. They take
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  Speaker 1: a small piece of the royalties based on the value
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  Speaker 1: of the chip that will sold to you. Do you
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  Speaker 1: think that this will inspire other telecoms to go out
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  Speaker 1: and try to purchase the same kind of intellectual property
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  Speaker 1: company that soft Bank has done. It's a very interesting play.
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  Speaker 1: I don't know. There are a whole lot of targets
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  Speaker 1: out there. Imagination Technology is the most comparable near term
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  Speaker 1: local pier, but again, Imagination is focused on graphics alone,
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  Speaker 1: um much smaller for print, much smaller and market focus,
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  Speaker 1: and much smaller function focused. So I don't know if
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  Speaker 1: there's a whole lot of plays out there. What does
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  Speaker 1: it tell you that soft Bank recently sold it's Ali
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  Speaker 1: Baba steak. It also recently sold the stake in the
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  Speaker 1: finished mobile game maker. Many investors thought that maybe that
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  Speaker 1: money was going to go to paid down debt. Not so. Look,
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  Speaker 1: there's there's clearly a change of strategy here from a
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  Speaker 1: soft Bank perspective. One of the change of management too
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  Speaker 1: a couple of the last couple of months sure Nication's departure. Uh.
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  Speaker 1: The question is this is to some degree this is
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  Speaker 1: not We shouldn't think of this as buying a chip entity.
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  Speaker 1: This is something that benefits from chip proliferation and the
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  Speaker 1: popularity of chip content in a variety of vent devices.
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  Speaker 1: So think of it as chip lebble software if you
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  Speaker 1: Mane tell us a little bit about the Uh. The
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  Speaker 1: creator really of SoftBank Maso's son, because he started out
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  Speaker 1: in the magazine business. Sure. So this is UM. This
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  Speaker 1: is I mean Michelle ma is our Japanese um UM
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  Speaker 1: telecom UM and listen, she's actually based in Hong Kong.
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  Speaker 1: So testament to b eyes reach. And one of the
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  Speaker 1: things that UM she has written is that you know,
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  Speaker 1: it has a lot of different assets that it tries
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  Speaker 1: to monetize and obviously some have worked out a little
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  Speaker 1: bit better than others. So moving these pieces around, both
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  Speaker 1: in terms of people, as you mentioned, management changes off
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  Speaker 1: late as well as the efficacy of these under laying businesses.
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  Speaker 1: So it's cash coming in here is dead coming and there.
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  Speaker 1: So they moved a lot of things around, but he
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  Speaker 1: He claims to have a long term focus um, but
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  Speaker 1: the near term is messy. Will see how the near
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  Speaker 1: term plays out. Thank you very much for spending time
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  Speaker 1: and explaining all this on True of Austin, senior Semiconductor
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  Speaker 1: and hardware analyst for Bloomberg Intelligence. Shares of ARM holdings
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  Speaker 1: up more than forty five percent. This is taking stock.
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  Speaker 1: I'm pim Fox and this is Bloomberg coming up on
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