SoftBank Group Corp (OTCMKTS:SFTBF) has turned its attention to the internet of things with an audacious $32 billion takeover bid for UK chip designer ARM holdings. The investment affirms the company’s strong believe that internet of things provides greater opportunities for growth, beyond smartphones and the world of connected cars and devices.
According to people familiar with ongoing talks, Softbank is nearing a deal for the chipmaker. Given its size, it would be the biggest deal since the BREXIT vote and should help bolster Softbank’s mobile strategy.
The proposed investment has however not gone well with investors seen by the stock crashing by more than 9%, representing the biggest drop since 2012. Concerns about the firm’s debt load that currently stands at $112 billion continue to send shivers among investors. Investors are also wary of the company’s ability to complete two major acquisitions in under three years.
Softbank Risky Bet
Even though it is not a bad bet, former QUALCOMM, Inc. (NASDAQ:QCOM) executive believes Softbank is taking a big risk with the investment in ARM. Given that are, no assurances that everything connected to the internet of things will run on ARM chips, the company could pay a big price if things don’t pan out as expected.
Growth in the smart home devices is being hampered by high price tags for devices, which continues to scare away costumers. A lack of mass market for such devices means Softbank cannot ship as many chips as possible, to generate a substantial amount of income. Industry revenue on IOT chips currently stands at a few billion dollars, which a good number of companies are battling it out for. In contrast, the smartphone business is currently valued at $80 billion.
Finances for the deal will not be a problem for SoftBank Group Corp (OTCMKTS:SFTBF) given that it has been selling assets in the recent past. Last month it offloaded its majority stake in Supercell for $8.6 billion having also offloaded stakes worth $10 billion in Alibaba Group Holding Ltd (NYSE:BABA).