U.S.-listed shares of Arm Holdings PLC surged out of the gate Thursday and closed 25% above their pricing after they began trading on the Nasdaq, following a long-awaited initial public offering.<\/p>\n
Arm\u2019s American depositary receipts Arm priced those shares at the high end of its expected range Wednesday.<\/p>\n Then, ADRs appeared to get a second wind after the close, rising more than 5% after hours. <\/p>\n <\/p>\n Chief Financial Officer Jason Child told MarketWatch on Thursday that Arm\u2019s focus going forward would be to take advantage of the skyrocketing costs of making smaller and smaller nanometer-sized transistors for chips. As transistors get smaller, the cost for intellectual property and software verification has ballooned to take up as much as three-quarters of the design cost, he said. <\/p>\n Rather than take on that cost themselves, chip makers are starting to farm that out to Arm, he said.<\/p>\n \u201cIt\u2019s allowing us to do the work, and then monetize the work that we do \u2014 for IP verification, software verification \u2014 we do that and sell it to everyone else at a fraction of the price what it would cost for them to do it on their own,\u201d Child told MarketWatch.<\/p>\n \u201cWhat it does is it allows us to actually get higher royalty rates over time because of the cost savings folks are getting by using us versus trying to maybe do more of the work on their own,\u201d Child said.<\/p>\n The CFO said this is part of why Arm is getting more business designing full compute subsystems rather than just providing instruction sets for central-programming units. <\/p>\n \u201cAs a result, we\u2019re seeing more customers wanting to take us up on that offer, because it\u2019s saving them a lot of time and a lot of money,\u201d Child told MarketWatch.<\/p>\n While Arm\u2019s IPO was reportedly several times oversubscribed, it was also met with anxiety over what appeared to be a high vulnerability to geopolitical tensions should a trade war heat up between the U.S. and China.<\/p>\n Child told MarketWatch that much of the company\u2019s relevant risk-factor language was at the behest of lawyers mulling over worst case scenarios. In the company\u2019s filing, Arm said its China business \u201coperates independently of us,\u201d and that exposed the company to \u201csignificant risks.\u201d<\/p>\n \u201cThat said, it\u2019s China,\u201d Child told MarketWatch. The CFO said that having overseen China operations at four different global companies, \u201cthis is the smoothest of any of my experience with China.\u201d <\/p>\n Read: <\/strong>Arm prices IPO at high end of range, raising $4.87 billion<\/p>\n \u201cGenerally, the whole thing between China and U.S. is there doesn\u2019t seem to be completely aligned incentives,\u201d Child said, noting that tensions between the U.S. and China are a problem for the semiconductor industry as a whole, and are not Arm specific.<\/p>\n \u201cWe are a U.K.-based company, and most of our IP is designed outside of the U.S. so we might be a little bit different from that perspective, but for the most part, it\u2019s pretty similar,\u201d Child told MarketWatch.<\/p>\n Read:<\/strong> Arm IPO: 5 things to know about the chip designer central to the AI transition<\/p>\n Over fiscal years 2023, 2022 and 2021, revenue from China-based customers accounted for about 25%, 18% and 20%, respectively, of Arm\u2019s total. Revenue from Taiwan-based customers accounted for 13.4%, 15.9% and 15.1%, respectively.<\/p>\n That looks fairly standard, as Nvidia Corp. With the quarter ending on Sept. 30, Child said the company expects to deliver its first earnings report in November. The company intends to post results \u201cin conjunction with SoftBank since they own 90% of the company,\u201d he added.<\/p>\n In fiscal 2023, which ended March 31, Arm said R&D costs amounted to 41% of revenue, up from 37% in 2022 and 40% in 2021. R&D costs rose 13.9% to $1.13 billion in 2023, as revenue slipped less than 1% to $2.68 billion, according to Arm.<\/p>\n
\n ARM,
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\n began trading Thursday just after noon Eastern, opening at $56.10 and rallying as much as 30% above their initial public offering price of $51. By the end of the day, shares finished up 24.7% at $63.59, according to FactSet, giving Arm a market capitalization of more than $65 billion based on 1.03 billion shares outstanding. <\/p>\n
\n NVDA,
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\n derives 21% of its revenue from China and 25.9% from Taiwan, according to FactSet data. Additionally, Advanced Micro Devices Inc.
\n AMD,
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\n gets 21.6% of its revenue from China, and 10% from Taiwan.<\/p>\n