Message from Arm CEO—SoftBank Group Report 2023

Arm is a global leader in the development of semiconductor technology and is defining the future of computing. A future that is being built by one of the most successful technology ecosystems in the world combining Arm, the leading CPU designer, and over 1,000 companies that partner with Arm to create billions of digital electronics products. We fueled the smartphone revolution and now we are redefining what is possible in cloud computing, transforming the automotive industry, enabling a thriving IoT economy, and making the metaverse a reality.

Through our focus on energy efficiency and our history of continuous innovation, we have enabled new categories of “smart” consumer electronics. Today, efficiency is not only important for business but also believed by many to be a critical component in achieving sustainability for our planet. This makes Arm’s CPU technology ideal for current and future computing applications as the demands for compute performance are insatiable while the need for low power and efficiency remains critical.

Arm licenses processor designs to semiconductor companies that incorporate the technology into their computer chips. Licensees pay a license fee to gain access to our technology and a royalty on every chip that uses one of our technology designs. Typically, the royalty is based on the selling price of the chip.

Each Arm design is suitable for a range of end applications and can be reused in a variety of chip families to address multiple markets. Each new chip family generates a new stream of royalties. An Arm design can be used in many different chips, and certain Arm-designed products continue to generate royalty revenue even 25 years after their initial development.

In our fast-paced world, new applications, device categories, and markets are continually emerging, many of which require advanced semiconductors to provide their capabilities. In contrast, it can take many years to develop the technology that is used in these new devices. Arm is investing currently for products that it expects consumers and enterprises will start using in 5–10 years. Since being acquired by SBG in 2016, Arm has significantly increased investments in R&D to ensure that it can develop technology suitable for all these new opportunities.

Arm has been investing to develop new processor technology to

It takes Arm’s customers time to develop the complex SoCs (system-on-chips)^*1 that contain Arm technology. Licenses signed today are not expected to yield royalty revenue for at least 2–3 years. However, if the chips are commercially successful, they can bring additional royalty revenue streams that could last for years, and even decades, to come.

After several years of accelerated investments, in fiscal 2022 Arm saw further revenue growth as its new products continue to come to market.

Arm’s technology royalty revenue grew to record levels in fiscal 2022, up 16.1% from fiscal 2021 due to the following:

This growth was despite a slowdown in the semiconductor industry, which declined 3.2%^*2 during fiscal 2022 primarily due to a decline in sales of low-cost smartphones, consumer electronics, and PCs, partially offset by continuing growth in automotive and industrial electronics.

Arm’s technology non-royalty revenue decreased 8.5% from fiscal 2021 primarily due to the revenue associated with high-value, multiyear agreements being recognized in fiscal 2021 creating a challenging comparison, partly offset by recently introduced licenses such as the Arm Total Access licenses, which are highvalue licenses providing the licensee with a portfolio of Arm products for many years.

We have made significant changes in Arm’s leadership. In November 2022, we welcomed Jason Child as Arm’s new CFO. Before joining Arm, he held multiple CFO positions. We have also expanded and diversified our Board by adding four new independent directors who bring a wealth of experience.

In addition, I joined the SBG Board in June 2023. I am excited about being a part of SBG’s journey to create the Information Revolution, and I am confident that I can serve the company’s stakeholders by providing insights regarding emerging technologies trends such as artificial intelligence, advanced chip design and manufacturing, and the Internet of Things. And how SBG, and its investees, might be best able to benefit from these trends.

In February 2022, SBG announced that Arm would start preparations for an Initial Public Offering (IPO) and in April 2023, we confidentially submitted a draft registration statement on Form F-1 to the U.S. Securities and Exchange Commission relating to the proposed IPO.