MADISON, Wis.—For proof that SoftBank is no ordinary Japanese conglomerate, look no further than its just-announced acquisition of ARM. Masayoshi Son, the smart, opinionated and hands-on CEO of SoftBank Group has constantly surprised the financial market with audacious bets like this.
Yes, SoftBank is Japanese, but it’s a company that defies the stuffy stereotype. It doesn’t subscribe to such Japanese traditions as snail’d-pace decision-making, bureaucratic quagmires, endless “internal” discussions, insular thinking and the ultimate paralysis of indecision.
To outsiders, though, the most vexing question about SoftBank’s deal with ARM is SoftBank itself.
Who are these guys and what’s in it for them? Put more bluntly, why does plunking down $32 billion for ARM really make sense for SoftBank?
Some industry analysts believe that the deal tells a story more about Son himself, rather than ARM’s market prospects or any realistic assessment of the Internet of Things in the future.
Mike Demler, a senior analyst at The Linley Group, told EE Times, “The deal looks more driven by Chairman/CEO Son’s personal desire to own a market leader than a sound financial analysis.”
Quoting Son, who remarked at the press conference that up ‘til now Softbank hasn’t owned a company that was number one in its segment, Demler said, “ARM has good growth potential, so it makes a nice trophy for his M&A portfolio. But the $32 billion valuation makes absolutely no sense.”
First, let’s look into where SoftBank is coming from.
SoftBank entered the consciousness of the U.S. tech community in 1995, when Son paid $800 million for the then monstrous computer show Comdex. That was a big deal, largely because SoftBank was virtually unknown outside Japan. Although already a legend in Japan, Son had little name recognition abroad, either.
Son was introduced as the “Bill Gates of Japan,” and SoftBank was described as a “Japanese software distributor and publishing company” at the time — more than 20 years ago.
Perhaps, one of the most remarkable things about SoftBank since then is that Son has remained atop SoftBank for all these years. Indeed, in many ways, SoftBank is Masayoshi Son, and Son is SoftBank.
Over the years, Son has proven himself extremely nimble in steering the company through different identities throughout the tech industry’s transformation.
No longer viewed as a computer software distributor, Softbank today is a telecommunications and Internet giant. Its businesses encompass broadband, fixed-line, e-commerce, Internet, technology services, finance and media.
Growth by M&As
Son has engineered much of SoftBank’s transformation by placing big bets. Some have paid off, others languish.
Demler noted, “Son boasted of Softbank’s investment track record with Yahoo and Alibaba, conveniently ignoring Sprint.” SoftBank is an owner of the struggling U.S. telecommunications company Sprint.
The bets that paid off include a $20 million investment in e-commerce company Alibaba Group Holding in 2000, now worth $65 billion, and the $15 billion acquisition of Vodafone’s lossmaking Japanese arm in 2006. That move positioned SoftBank as the number three carrier in the market.
SoftBank has accumulated $18 billion (2 trillion yen) in cash in recent months by unwinding its stakes in Alibaba, Japanese smartphone game developer GungHo Online Entertainment, and Finnish mobile game provider Supercell.
Undoubtedly, Son’s audacity and the available cash on hand made this deal with ARM possible.
Irrational exuberance for IoT and AI?
In announcing the deal with ARM, Son made a pitch for the Internet of Things (IoT) and artificial intelligence (AI), touting them as SoftBank’s next growth engine.
But here’s the thing.
SoftBank is neither a competitor nor a customer to ARM. So it remains unclear why on earth Son wants ARM — other than to expand his investment portfolio.
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