[Market Eye] Qualcomm reignites Arm consortium talks, SK hynix alliance

The latest open remarks by US tech giant Qualcomm’s CEO Cristiano Amon has reignited speculation that the firm would purchase a stake in SoftBank-backed chip designer Arm through a consortium with global chipmaking rivals including South Korean firm SK hynix.

This highlights the growing cash pile-up of South Korea-based memory chip designer and manufacturer SK hynix, coupled with its parent SK Group’s 142.2 trillion won ($114.6 billion) spending pledge in semiconductors over the next five years. SK hynix, which owns some 5 trillion won in cash ammunition as of end-2021, is one of the chipmakers who showed interest in the joint acquisition of Arm this year.

Calling himself an “interested party in investing” in Arm, Amon of Qualcomm said in an interview with the Financial Times published Monday that the consortium talk is crucial for the company’s independence, which designs processor chips for smartphones, self-driving cars and Internet-of-Things devices.

Amon is the third figure in the chipmaking industry to express a bid to join the consortium to acquire Arm, along with SK hynix Vice Chairman Park Jung-ho and Intel CEO Pat Gelsinger.

All three appear to agree on one thing: Exclusive ownership of Arm by a single corporation is likely to undermine the firm’s independence, which raked in over $1 billion from chip design licensing alone in 2021. Currently, there is a heated race for strategic assets in the wake of a semiconductor chip shortage.

Park and Amon are seemingly on the same page about Arm’s ownership. In the interview, Amon said that the “collective investment of the entire ecosystem” and its “independent, open architecture” have brought Arm to where it currently stands. Park, after a SK hynix shareholder meeting in March, said the global chip industry “will not allow a single entity to take full advantage of an (Arm) acquisition.”

Given that Nvidia’s proposed acquisition of Arm fell through in February due to antitrust concerns, a prospective consortium is likely to secure as many participants as possible to steer clear of such hurdles.

Amon of Qualcomm in the interview did not elaborate on who the other prospective investors are.

Speculation over Arm’s joint ownership has put a spotlight on the existing business relationship between SK hynix and Qualcomm.

In January, Park and Amon met at the Consumer Electronics Show 2022 in Las Vegas in closed-door talks.

SK hynix said in a January statement that the talks between the two centered around Qualcomm’s joint effort with SK hynix to develop hyperspeed memory products, as well as collaboration with SK hynix’s telecommunications affiliate SK Telecom to jointly invest in the field of fifth-generational network.

Meanwhile, Intel’s Gelsinger met Samsung Electronics’ de facto leader, Vice Chairman Lee Jae-yong, earlier this week about collaborating in semiconductors, from memory chip standards to contract-based chip manufacturing. No further details of the discussions were disclosed.

Still, experts say the Arm acquisition remains a tall order. SoftBank, Arm’s controlling shareholder, is considering listing it on the US stock market by next year. It has not confirmed any acquisition talks with a third party since the Nvidia deal fell through in February.

Moreover, Arm’s lacking profitability coupled with the ballooning cost for future growth is likely to become a headache to prospective investors.

According to SoftBank, Arm’s losses before income tax came to 33.9 billion yen ($264.9 million) during the fiscal year ending March 2021, up threefold from the previous year. Arm did not disclose its profit-related figures in its annual financial report for 2021 in May.

Meanwhile, Arm’s R&D spending for the fiscal year ending March 2021 came to $886.2 million, up 24 percent from a year prior, according to a regulatory filing.

SK hynix’s cash stockpile grew 70 percent in 2021, and analysts expect the cash reserve to grow twofold to threefold through 2022. However, Song Myung-sup, an analyst at Hi Investment & Securities, cast a grim outlook.

“It is a challenging task for SK hynix to participate in a consortium for Arm acquisition, as there is higher possibility of Arm’s initial public offering following the deal collapse with Nvidia,” Song wrote in the investor note.

(consnow@heraldcorp.com)