Arm to spin off IOT units as Softbank continues to search for loose change

The official line is the move will allow Arm to give more attention to its core semiconductor business, but it will also allow financially strained parent-company Softbank to sell a slice.

Starting with the Arm announcement before we provide some context to the situation, the team has said spinning out the two IOT units which remove a complicated distraction, allowing the engineering resources to be completely focused on its traditional IP business. With the adoption of 5G beginning to ramp up, this is the beginning of the growth curve companies like Arm have been preparing for, the point where the last few years hard work starts to pay off.

“Arm believes there are great opportunities in the symbiotic growth of data and compute,” said Simon Segars, CEO of 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.”

This does sound like a logical reason to spin out a developing the business, however you have to consider the context of the situation also.

Arm’s parent company is in a bit of bother. Its attempt to diversify revenues and invest in the emerging tech scene have gone south in recent months. During the last financial update, Softbank confirmed the Vision Fund was down roughly $17 billion year-on-year thanks to the tough trading conditions which the entire world is facing.

In response to the financial dent, Softbank confirmed it would be selling a portion of its stake in the highly successful T-Mobile US business, raising almost $15 billion. This will reverse some of the negative impact of COVID-19 on the investment business, but two IOT business units is another interesting opportunity.

The plan, as it stands, would be to create two Softbank-owned IOT business units, known as IoT Platform and Treasure Data. The IOT segment is still scaling, so there is plenty of room for growth in these business units which will start to look very attractive to investors who want to lean on the Arm reputation and profit from the increasing acceptance of IOT.

Softbank has not suggested it would sell a stake in these units yet, but it makes sense as a strategy to appease investors, some of whom must be blood-thirsty after seeing cash disappear in front of their eyes.