WEBVTT - Bloomberg's Srinivasan on SoftBank Buying ARM Holdings (Audio)

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<v Speaker 1>Charlie Pellett, and that's a Bloomberg Business Flash. This is

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<v Speaker 1>taking stock with pim Box and Kathleen Hayes on Bloomberg Radio.

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<v Speaker 1>Japanese internet and telecommunications conglomerates SoftBank Group. It's buying the

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<v Speaker 1>UK based designer of the microprocessors that power your smartphone.

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<v Speaker 1>At least more than of the world smartphones contain arm

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<v Speaker 1>holding chips. It is a thirty two billion dollar deal,

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<v Speaker 1>and the deal well, it's cements SoftBank's new strategy and

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<v Speaker 1>the Internet of things, at least according to the company.

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<v Speaker 1>Here to tell us more on En Trinevason, Senior Semiconductor

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<v Speaker 1>and Hardware analyst for Bloomberg Intelligence. Of course, Bloomberg Intelligence

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<v Speaker 1>provides unique real time research and a variety of industries

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<v Speaker 1>and all of the market and government factors that affect

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<v Speaker 1>businesses are terminal. Customers can access this function by just

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<v Speaker 1>typing b I go on the Bloomberg on and thanks

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<v Speaker 1>very much for being here. So tell me why is

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<v Speaker 1>it really about the Internet of things? Why is Marcio

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<v Speaker 1>Chi San of soft Banks spending thirty two billion for

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<v Speaker 1>arm Holdings. This gives them an entry into the intellectual

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<v Speaker 1>property of multiple devices in multiple in markets without the

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<v Speaker 1>messiness of having to make hardware or having to make chips.

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<v Speaker 1>Here you control pure intellectual property, You controller to the source,

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<v Speaker 1>and you proliferate multiple in markets phones, tablets, auto networking gear,

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<v Speaker 1>DVR players, and so on, including the Internet of Things,

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<v Speaker 1>without having to make chips, without having to make hardware.

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<v Speaker 1>In fact, if you were a chip maker or a

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<v Speaker 1>hardware maker and had attempted to buy ARM, you would

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<v Speaker 1>lose a lot of revenue from potentially your peers who

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<v Speaker 1>are seeking to license ARM property. So this was a

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<v Speaker 1>clean um acquisition from slightly outside of the food chain,

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<v Speaker 1>and it makes a lot of sense. Makes a lot

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<v Speaker 1>of sense? Does it make a lot of sense? And

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<v Speaker 1>as much as they spent soft Bank spent what twenty

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<v Speaker 1>billion dollars three years ago to purchase Sprint, is this

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<v Speaker 1>going to give Sprint a leg up? The question is

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<v Speaker 1>does it have a flexibility? Does it leave enough flexibility?

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<v Speaker 1>From um SoftBank's perspective, both from our debt and equity

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<v Speaker 1>side and massasan at the conference called this morning, suggested

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<v Speaker 1>that Print Frint was a self sustaining entity and that

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<v Speaker 1>he wouldn't have to put in more money in that

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<v Speaker 1>direction and with um ARM he potentially gains a free

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<v Speaker 1>casual producing assets. So potentially he could reap some of

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<v Speaker 1>the gains here and allows him some flexibility to invest

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<v Speaker 1>in other places. Although he contended that that was not

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<v Speaker 1>his name. What about the actual purchase price thirty two billion?

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<v Speaker 1>This this wasn't a cheap acquisition by any stretch, but

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<v Speaker 1>given its edition within the industry, it's one or maybe

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<v Speaker 1>five clean players who have this kind of a position

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<v Speaker 1>in the chip business. Um, you knew that the price

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<v Speaker 1>was going to be high and a premium was certainly

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<v Speaker 1>going to be extracted, and that is the case here.

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<v Speaker 1>And you mentioned that this company Arm Holdings, it does

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<v Speaker 1>not manufacture microprocessors, It just designs them correct. So what

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<v Speaker 1>they do is they produce basic building blocks. I think

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<v Speaker 1>of it from a lego structure. I produce blue, green, yellow,

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<v Speaker 1>um building blocks, and you can then take that and

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<v Speaker 1>build whatever structure you want. You can use them as

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<v Speaker 1>this chances how you may not be able to differentiate

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<v Speaker 1>your product as much, but then you can make your

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<v Speaker 1>grand castle in the sky and have it be dramatically

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<v Speaker 1>different from your competitors product. And it licenses designs right,

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<v Speaker 1>the licensing almost the blueprints correct. So one part of

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<v Speaker 1>their business is you take a license and you build

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<v Speaker 1>stuff based off of their building blocks. The second part

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<v Speaker 1>of their revenue, which is a bigger poor the revenue

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<v Speaker 1>quite frankly comes to to three years later when you

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<v Speaker 1>actually ship the product and it becomes popular. They take

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<v Speaker 1>a small piece of the royalties based on the value

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<v Speaker 1>of the chip that will sold to you. Do you

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<v Speaker 1>think that this will inspire other telecoms to go out

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<v Speaker 1>and try to purchase the same kind of intellectual property

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<v Speaker 1>company that soft Bank has done. It's a very interesting play.

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<v Speaker 1>I don't know. There are a whole lot of targets

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<v Speaker 1>out there. Imagination Technology is the most comparable near term

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<v Speaker 1>local pier, but again, Imagination is focused on graphics alone,

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<v Speaker 1>um much smaller for print, much smaller and market focus,

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<v Speaker 1>and much smaller function focused. So I don't know if

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<v Speaker 1>there's a whole lot of plays out there. What does

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<v Speaker 1>it tell you that soft Bank recently sold it's Ali

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<v Speaker 1>Baba steak. It also recently sold the stake in the

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<v Speaker 1>finished mobile game maker. Many investors thought that maybe that

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<v Speaker 1>money was going to go to paid down debt. Not so. Look,

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<v Speaker 1>there's there's clearly a change of strategy here from a

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<v Speaker 1>soft Bank perspective. One of the change of management too

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<v Speaker 1>a couple of the last couple of months sure Nication's departure. Uh.

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<v Speaker 1>The question is this is to some degree this is

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<v Speaker 1>not We shouldn't think of this as buying a chip entity.

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<v Speaker 1>This is something that benefits from chip proliferation and the

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<v Speaker 1>popularity of chip content in a variety of vent devices.

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<v Speaker 1>So think of it as chip lebble software if you

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<v Speaker 1>Mane tell us a little bit about the Uh. The

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<v Speaker 1>creator really of SoftBank Maso's son, because he started out

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<v Speaker 1>in the magazine business. Sure. So this is UM. This

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<v Speaker 1>is I mean Michelle ma is our Japanese um UM

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<v Speaker 1>telecom UM and listen, she's actually based in Hong Kong.

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<v Speaker 1>So testament to b eyes reach. And one of the

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<v Speaker 1>things that UM she has written is that you know,

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<v Speaker 1>it has a lot of different assets that it tries

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<v Speaker 1>to monetize and obviously some have worked out a little

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<v Speaker 1>bit better than others. So moving these pieces around, both

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<v Speaker 1>in terms of people, as you mentioned, management changes off

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<v Speaker 1>late as well as the efficacy of these under laying businesses.

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<v Speaker 1>So it's cash coming in here is dead coming and there.

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<v Speaker 1>So they moved a lot of things around, but he

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<v Speaker 1>He claims to have a long term focus um, but

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<v Speaker 1>the near term is messy. Will see how the near

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<v Speaker 1>term plays out. Thank you very much for spending time

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<v Speaker 1>and explaining all this on True of Austin, senior Semiconductor

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<v Speaker 1>and hardware analyst for Bloomberg Intelligence. Shares of ARM holdings

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<v Speaker 1>up more than forty five percent. This is taking stock.

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<v Speaker 1>I'm pim Fox and this is Bloomberg coming up on

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<v Speaker 1>taking stock. Former Secretary of State George Schultz and his

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<v Speaker 1>new book Blueprint for America. Find out what it is

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<v Speaker 1>and what he learned as a marine. That's next