Softbank’s great adventure seems to be coming to an end, as the Japanese operator and investment fund reported its worst ever loss, and seemed poised to sell stakes in telcos at home and in the USA. While it may reduce its holding in T-Mobile USA, or even exit the market, one of its assets is not in doubt – processor IP giant ARM, which has defied the recent crisis in Softbank’s portfolio and could even provide a saving grace in the form of an IPO.
Softbank’s main businesses reported $13bn in total annual losses and it lost another $18bn on its investments. The company has now pledged to sell $41bn in assets to boost liquidity and fund a major stock buyback program.
The broader context for speculation about Softbank’s shake-up of its holdings was the poor performance of its mighty Vision Funds, their challenges only worsened by the pandemic crisis. The first Vision Fund, worth $100bn, was launched in 2017 Softbank’s maverick chairman, Masayoshi Son, claimed this would be the starting point to create a technology platform for next generation societies, based on many key enablers from 5G to AI/ML to virtual reality. But that Fund has reported huge losses of $18bn, after Softbank was forced to write down the valuations of investments like Uber and WeWork by billions of dollars. That put the future of the $108bn Vision Fund 2, announced in July, in doubt.
Son is not giving up yet. He claimed, on the earnings call last week, that time would show the true value of his investments. He has made unprecedented share buybacks and promised to sell $41bn in assets, to boost Softbank’s share price 71% above its low in March. But even the ebullient Son was forced to admit that at least 15 of the 88 Vision Fund-backed start-ups were likely to go bust, blaming the pandemic, while 47 have had their values greatly reduced.
Under pressure from activist investor Elliott Management and others, Son is looking at selling stakes in key assets such as T-Mobile USA and Alibaba (Alibaba founder Jack Ma, a close ally, resigned from Softbank’s board recently).
Softbank owns about 25% of ‘New T-Mobile’, which was formed when Deutsche Telekom’s US arm acquired Softbank’s Sprint this year. Now, the Wall Street Journal reports that Softbank is negotiating to sell a significant portion of its stake to DT, which would hand more than 50% of the firm, and control, to the German firm. DT currently owns 44%.
In fact, Softbank is barred from selling most of its stake in T-Mobile USA for the next four years according to the merger agreement, but the proposed sale could occur as a secondary offering and in coordination with DT. T-Mobile USA’s current market capitalization is $125.92bn and Softbank’s stake is valued at nearly $31.5bn. It paid $22bn for Sprint.
The Japanese company also plans to sell a 5% stake in its Japanese MNO of the same name, which is currently valued at $3.1bn.
There is one star in the Softbank sky, and that is ARM, which Son says is worth $25bn, hinting at an IPO at a far earlier date than the 2023 he had originally suggested.
“Going forward, ARM chips are going to be used more and more by Amazon. In fact, not only Amazon’s AWS, but Microsoft Azure, VMware and Nvidia as well,” Son told the earnings call audience. “More and more global companies have adopted ARM-based chips for their cloud servers and that’s a global trend.”
Dominant in processor cores for mobile devices, ARM has been expanding in recent years into designs for server and cloud infrastructure chips, as well as the IoT. Softbank acquired the UK-based company for $32bn in 2016 and in 2018, sold a 25% stake for $8bn to investors including Gulf-based funds. If the remaining 75% is now worth $25bn, that would signify a $1bn increase in ARM’s value since 2018.