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Why ARM's Sale to SoftBank Could Fund a New 'PayPal Mafia'

Although the initial shock may have worn off, the long term implications Monday’s controversial buyout offer for British technology firm ARM, by the Japanese giant SoftBank, are still unclear.
An ARM processor produced by Taiwan's MediaTek. Image: Pascal Volk/Flickr

On the morning of Monday 18th July we woke up to find that ARM, arguably one of the biggest British post-war technological success stories, had accepted a £24.3 billion ($32 billion) buyout offer from the Japanese technology firm SoftBank. Although the initial shock may have worn off, the longer term implications of the deal is still unclear.

ARM, a chip design firm with technology in almost every cell phone, is Britain's largest technology company. However, unlike its main rival Intel, ARM does not manufacture its own chips. Instead it licenses the intellectual property out to others, including both Samsung and Apple. Whether you own an iPhone, or an Android phone, the processor at the heart of it will almost certainly be built around an ARM core.

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Politically, the deal comes at a sensitive time in Britain, only a few weeks after the British vote to leave the European Union. On taking office Theresa May, the new British Prime Minister, promised an industrial strategy to defend nationally important sectors. If there was ever any hope of a British built, British owned, technology firm taking over the world, ARM was the United Kingdom's last best hope.

While both the Prime Minister, and her new chancellor Philip Hammond — the minister responsible economic and financial matters, equivalent to the role of Secretary of the Treasury — were consulted ahead of the announcement, and publicly welcomed the news, their enthusiasm might be more relief that foreign companies still want to invest in Britain at all rather than the deal itself — seen by many to raise questions around the new government's industrial policies.

The company's long history in the sector is almost uniquely tied with the country that gave birth to it, spun out of the British computer company Acorn in a joint venture with Apple, after they developed the processors that powered the BBC Microcomputer — the computer which defined the first generation of home computing in Britain, almost as much as the Apple II did in the States. Some close to the company have reacted to the sale with disappointment, and fear that the company's family friendly culture will be diluted now that it no longer stands alone. While Hermann Hauser, the man who helped spin ARM out from Acorn in the first place, called it "a sad day for technology in Britain".

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The sale may also be seen as an indicator of the huge and ongoing technological and cultural shift away from the west to Japan, China, and the far east. While we in the west are happy to view China, especially, as somewhere to build our own products cheapily, there still seems to be the myth that China — and even now, although to a lesser extent, Japan — can't innovate. That myth is quickly fading, especially when confronted with "gongkai" (公开), and the ability to build a $12 cellphone.

In an interview with the Nikkei Asian Review Masayoshi Son, SoftBank's CEO, said, "Looking into the next 30 years, our focus will no doubt be on AI, smart robots, and the internet of things." That's a view of the world that he shares with his contemporaries in Silicon Valley, and makes the acquisition of ARM by SoftBank a strategic move for the company.

Unlike Intel, who disastrously missed the move to mobile, ARM is well placed to exploit the current trend towards embedded systems, and the Internet of Things. "ARM being as a public company could not be aggressive enough," Son said, "It had to carefully balance the bottom line. I will encourage them to invest further: ARM is going to be everywhere on Internet of Things."

But beyond that, the sale also has potentially huge consequences for the technology industries, especially in ARM's home town of Cambridge. The technology cluster around Cambridge, known as Silicon Fen, has grown up with and around ARM's Cambridge headquarters, and in the shadow of the University of Cambridge.

The £17 a share offer price gave ARM shareholders a 43 percent premium on last Friday's closing share price and a 41.1 percent premium on the all-time high share price. A combination of new money in the hands of ARM's senior engineers and executives, many of whom had equity stakes in the company, and the concentration of talent in the region, could well leave a lasting impact — funding of a new generation of entrepreneurs in Cambridge, in the same way as the much lauded "PayPal Mafia" did in Silicon Valley after the dot-com bust.

Emboldened by their sudden windfall, and promises of investment in ARM's Cambridge base of operations by SoftBank, a series of new startups could well emerge like new shoots around the trunk of an older tree. The Silicon Valley lesson, that generations of companies built in the same place builds a self sustaining ecosystem designed to build yet more new companies, may well have found a new home in the fens around Cambridge thanks to a Japanese company.