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February 15, 2022 03:22 pm

How SoftBank's Costly Bet on the 'Internet of Things' Backfired at Arm

As Masayoshi Son tried to persuade investors of the wisdom of purchasing one of the most successful chip companies in the world in 2016, the SoftBank chief had one clear message: "For the era of the 'Internet of things,' I think the champion will be Arm." But the concept of connecting billions of everyday and industrial devices to the Internet has been much slower than anticipated to materialize. From a report: Son's drive to capture the chip design market for the Internet of things (IoT) was the first bet he made on Arm that has not paid off. The second was a $66 billion sale of the company to Nvidia that unraveled last week. Arm remains the dominant player in designing chips for smartphones, still the most ubiquitous form of computing but a source of much slower growth in recent years. Ahead of an initial public offering that could come as soon as this year, the company is racing to solidify its position in new markets that it has underexploited to date, while trying to drive up profits to appeal to a new set of investors. Rene Haas, Arm's incoming chief executive, told the Financial Times that its products were now "far more competitive" in data centers and cars than when SoftBank bought the Cambridge-based company. "Making trade-offs about where to invest, where not to invest...âthose are the trade-offs that public companies and even private companies have to do every day," he said. "The company is in great shape." When Son spearheaded the $31 billion purchase of Arm, he saw it as a wager on the future of the entire technology industry, which was crystallizing at that time around the IoT concept. He proceeded to push the executive team firmly on the course to designing chips for this future of machine connectivity. Five-and-a-half years later, it has become increasingly clear that the IoT gamble was a costly misadventure. Moreover, it distracted Arm from attacking Intel's dominance in the much larger data center market. As Son's vision collided with reality, SoftBank quietly revised its market calculations. A presentation from 2018 forecast that by 2026, the IoT controller market would be worth $24 billion, and the server market $22 billion. But, a similar presentation from 2020 predicted that by 2029, the IoT chip market would reach only $16 billion, while the server market -- of which Arm had so far only captured a 5 percent share -- would reach $32 billion. The Japanese technology group also revised down its estimate of the value of the IoT market, from $7 billion in 2017 to $4 billion in 2019.

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