Softbank Group Corp. · TSE:9984
Softbank — ARM Holdings — Investor Presentation (February 2017)
40 slides from Softbank's investor presentation, February 2017
Slide 1: ARM: Investing for future growth
ARM: Investing for future growth Ian Thornton Head of Investor Relations ARM Holdings plc ARM Holdings is a subsidiary of
Slide 2: Agenda
Agenda Part one § ARM overview § Flexible business model § Impact of accelerating investment on P&L Part two § Amortisation of intangibles § Current technology investments 2 © ARM 2017
Slide 3: ARM overview
3 ©ARM 2017 ARM overview ARM
Slide 4: Chip design – then and now
Chip design – then and now 1961 2016 Four transistors Two billion transistors One engineer Thousands of engineers 4 © ARM 2017
Slide 5: A system-on-chip contains multiple blocks of IP
A system-on-chip contains multiple blocks of IP Main processor for running the operating system, applications and user interface Graphics processor for generating images Accelerators for frequently-used compute workloads, e.g. image processing, encryption, vision Radio controllers for mobile, wifi,
Slide 6: ARM’s current business
ARM’s current business § ARM develops intellectual property (IP) blocks which are used in silicon chips § Our partners combine ARM IP with their own IP to create complete chip designs § We earn license fees when we deliver ARM IP to our partners and royalties when our partners ship chips that contai
Slide 7: Generating $600m annualised free cash flow
Accelerating investment Investing to create to increase share gains new revenue streams § mbed Cloud SaaS business § Early-stage investment but many years in research § Securely connect any device into your network, using any communications technology, supporting any cloud platform § Cloud provision
Slide 8: Investment philosophy
Investment philosophy § SoftBank has asked ARM to accelerate investments and to increase risk appetite § Rate of investment is discretionary and controlled by ARM’s Board § Investments remain targeted on delivering long-term, sustainable growth § All costs are expected to be financed from IP busines
Slide 9: Linking ARM’s business model to investments in new technology
Linking ARM’s business model to investments in new technology 9 © ARM 2017
Slide 10: Revenue
Revenue 10 © ARM 2017 Spreadsheet available from: www.arm.com/ir
Slide 11: License revenue
License revenue $700m $602m $601m $600m $500m $400m $300m $200m $100m $0m FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 ARM license revenue - SoftBank fiscal year 11 © ARM 2017
Slide 12: Processor royalty revenue
Processor royalty revenue $500m $450m ~680 licences $400m signed since Q1 $350m Pre-2007 2012 ~680 $300m 2007-2011 $250m 2012 to present $200m $150m ~380 $100m $50m ~380 licences $0m H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 12 © AR
Slide 13: Software and Services
Software and Services § ARM supplies products and services that help our partners bring ARM-based devices to market § Includes Keil tools, developer boards, customer support and training and new SaaS business mbed Cloud 13 © ARM 2017
Slide 14: Investments and profits
Investments and profits 14 © ARM 2017 Spreadsheet available from: www.arm.com/ir
Slide 15: How ARM thinks of its investments
How ARM thinks of its investments 80% 10% 10% Product investment Ecosystem investment Enabling Functions Engineers Product Marketing HR Research Segment Marketing Finance Sales and support Legal 15 © ARM 2017 IT
Slide 16: Increasing R&D = Increasing Headcount
Increasing R&D = Increasing Headcount § ARM intends to double ARM’s UK 10,000 headcount within five years of the 9,000 8,000 acquisition and expand headcount ROTW 7,000 UK in all regions 6,000 5,000 4,000 § More engineers means ARM will 3,000 § Develop more technology 2,000 § Develop technology fast
Slide 17: © ARM 2017
17 © ARM 2017
Slide 18: © ARM 2017
18 © ARM 2017
Slide 19: Profits and profitability
Profits and profitability £1,400m 45% Revenue Total Costs £1,200m IFRS EBIT IFRS Margin 40% § Over the past 10 years ARM’s 35% revenues grew faster than costs £1,000m 30% § Profits grew and profitability £800m 25% edged over 40% 20% £600m § At the start of the next phase of 15% investment ARM expect
Slide 20: Profits, cash generation and use of cash
Profits, cash generation and use of cash £600m £500m IFRS EBIT Normalised cash generation £400m £300m £200m £100m £0m 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 £0m -£100m -£200m -£300m Dividend Buybacks Acquisition related payments -£400m IP licensing and other one offs 20 © ARM 2017 -£
Slide 21: Uses of cash in more detail
Uses of cash in more detail £140m £140m Dividend Buyback £120m £120m £100m £100m £80m £80m £60m £60m Paused during global £40m £40m financial crises £20m £20m £0m £0m 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 £300m Paying off bridgi
Slide 22: ARM has over £1.2bn of net cash and no debt
ARM has over £1.2bn of net cash and no debt £1,200m £1,200m £1,000m £800m £600m £400m £200m £0m 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 22 © ARM 2017
Slide 23: Return on Investments – ARMv8-A case study
Return on Investments – ARMv8-A case study § ARM incurs R&D costs many years before revenue starts Multiple processors in development Research into 64-bit computing First generation started in 2000 of processors Architecture ARMv8-A development and Development starts processor design 2008 2009 2010
Slide 24: Return on Investments – ARMv8-A case study
Return on Investments – ARMv8-A case study § ARM incurs R&D costs many years before revenue starts New processors Processor Research into First announced delivery 64-bit computing processor (major revenue started in 2000 licensing recognition trigger) First Processor ARMv8-A architecture licensing D
Slide 25: Return on Investments – ARMv8-A case study
Return on Investments – ARMv8-A case study § ARM incurs R&D costs many years before revenue starts Research into 64-bit computing Royalty started in 2000 Processor ramps Architecture royalty ARMv8-A royalty starts Development starts starts 2008 2009 2010 2011 2012 2013 2014 2015 2016 25 © ARM 2017
Slide 26: Return on Investments – General case
Return on Investments – General case § ARM incurs R&D costs many years before revenue starts New technology announced Research started Technology Recurring many years ago First delivery revenue technology starts agreements New technology development starts Initial development phase Investment ramps
Slide 27: Summary of part one
Summary of part one § ARM’s primary business continues to be very profitable § ARM intends to: § Increase investment in primary business to accelerate market share gains § Invest in new IoT business to create new revenue streams § Rate of investment is discretionary and under our control § Investmen
Slide 28: Agenda
Agenda Part one § ARM overview § Flexible business model § Impact of accelerating investment on P&L Part two § Amortisation of intangibles § Current technology investments 28 © ARM 2017
Slide 29: Amortisation of intangibles
Amortisation of intangibles 29 © ARM 2017
Slide 30: Amortisation of intangibles
Amortisation of intangibles § ARM’s intangibles have been valued at around £5bn / $6.5bn / ¥700bn § Amortised using a straight-line method over the useful life of the asset § Amortisation for first eight years will be around £370m per year Technology Customer relationships Trademarks 30 8-20 years ©
Slide 31: Post acquisition: Increasing investment in the latest technology
Post acquisition: Increasing investment in the latest technology to accelerate market share gains and to create new revenue streams 31 © ARM 2017
Slide 32: ARM’s main markets
ARM’s main markets Increasing functionality is creating Increasing software costs is driving demand for more advanced need for standard architecture technology. creating opportunity for ARM. Mobile and Automotive Consumer and Robotics Market share in 2016: Mobile 90% / Consumer 65% Market share in 2
Slide 33: ARM technology is applicable across many markets
ARM technology is applicable across many markets Mobile and Enterprise Automotive Embedded and Consumer and Servers and Robotics Connectivity Artificial intelligence including computer vision ü ü ü ü ü ü ü Virtual, augmented and mixed reality Internet of things related technology ü ü ü ü Hyperscale
Slide 34: ARM technology: Recent announcements
ARM technology: Recent announcements Artificial intelligence DynamIQ for accelerated AI including computer vision Virtual, augmented and Cetus Display Technology mixed reality Internet of things related Narrow Band IoT Safety-critical IP technology Hyperscale computing Microsoft Azure Amazon AWS Sec
Slide 35: ARM technology: Recent announcements
ARM technology: Recent announcements Artificial intelligence DynamIQ for accelerated AI including computer vision Virtual, augmented and Cetus Display Technology mixed reality Internet of things related Narrow Band IoT Safety-critical IP technology Hyperscale computing Microsoft Azure Amazon AWS Sec
Slide 36: ARM DynamIQ – Multicore redefined
ARM DynamIQ – Multicore redefined Redesigned memory Advanced compute New single cluster design Greater flexibility sub-system capabilities 36 © ARM 2017
Slide 37: Accelerating AI adoption everywhere
Accelerating AI adoption everywhere DynamIQ boosting AI/ML performance both on CPU and in system Dedicated processor instructions Improved access to and optimized libraries for AI acceleration More than 50x AI performance Up to 10x quicker boost on the CPU in the next 3-5 years response for accelera
Slide 38: ARM announced Narrow-Band IoT radio IP
ARM announced Narrow-Band IoT radio IP § NB-IoT is a cellular communications Evaluation platform Q3 ‘17 Narrow-Band IoT is a key technology standard compatible with 5G Customer silicon Q3 ‘18 § Enables pre-installed (and pre-paid) Forecast NB-IoT connectivity for any electronic device market shipmen
Slide 39: ARM technology in Microsoft Azure and Amazon AWS
ARM technology in Microsoft Azure and Amazon AWS “Over 50% of Azure “Every server we deploy will have at least one of data center capacity these; some will have a lot more. can be ARM servers.” This is a really big deal.” Leendert van Doorn Distinguished Engineer at Microsoft James Hamilton, VP and
Slide 40: ARM Q&A
ARM Q&A