A dismal bet that may turn out as the biggest IPO of the year

SoftBank’s lofty ambitions for chip maker Arm have fallen short. Now the market is about to issue its verdict

- Eliot Brown 

When Masayoshi Son's SoftBank Group struck a 2016 deal to buy chip company Arm, he was so excited he said the $32 billion purchase was "very much my destiny" after decades of tech investing.

"You can say almost with confidence," the billionaire chief executive told analysts, "that it will grow 5x in five years." It didn't.

Arm remains a leading designer of components for chips used in smartphones, computers and cars, but SoftBank's largest-ever deal has fallen well short of its lofty goals.

Arm's revenue is up 65% since 2016, slightly ahead of the broader chip sector but well behind sector leaders. A huge increase in research spending has yet to convert to the higher profits Son foresaw. And a bet on the Internet of Things-envisaging a future where connected refrigerators, doorbells and other gadgets became ubiquitous-fell flat.

The market's verdict on Arm and its years under SoftBank's custody is due this month, when the chip designer lists on the Nasdaq Stock Market, in what will likely be the year's largest initial public offering.

The Japanese technology conglomerate is expected to sell a roughly 10% stake.

Arm is eyeing a target valuation between $50 billion and $55 billion, according to people familiar with the matter. Some analysts peg Arm's worth at between $45 billion and $50 billion, while SoftBank recently valued Arm at $64 billion when it bought out a stake held by its own SoftBank Vision Fund.

An IPO at the Vision Fund price would double SoftBank's original valuation and that would require investors to be particularly bullish on Arm compared with other chip stocks, given its comparatively modest revenue and profit growth in recent years.