SoftBank Stock Forecast: Owning ARM Holdings Makes It A Giant In Mobile and Internet Of Things

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First.

SoftBank Stock Forecast

Summary:

  • SoftBank sold its stakes in game publishers Supercell and GungHo Entertainment to finance its $32 billion acquisition of ARM Holdings.
  • Taking ownership of ARM Holdings means SoftBank is now a leader in the smartphone and Internet of Things industries.
  • ARM Holdings owns the license/technology behind low-power ARM-based processors that powers 95% of mobile gadgets today.
  • SoftBank has the resources to transform ARM Holdings into a real semiconductor firm like Qualcomm and Intel.
  • Go long on SFTBY. It has great buy signals from algorithmic forecasts.

I thought SoftBank’s (SFTBY) move to sell its stakes in Alibaba (BABA), Supercell, and GungHo Entertainment was to help reduce its massive load. However, it was actually to help finance its $32 billion acquisition of ARM Holdings (ARMH). SoftBank raised $10 billion from the sale of some of its BABA shares. Selling the 72.2% Supercell stake also gave it $8.6 billion. Another $680 million was raised from the sale of its stake in GungHo entertainment.

I encourage long-term investors to go long on SFTBY. The bold $32 billion bet to get ARM Holdings is easily to explain. SoftBank likely wants to turn ARM Holdings in to another Qualcomm (QCOM) and Intel (INTC). Qualcomm, like MediaTek, Samsung (SSNLF), Apple (AAPL), and Nvidia (NVDA) became successful by designing ARM-based processors using technology and chip architecture licensed from ARM Holdings.

sftby2
(Source: SoftBank)

There is nothing preventing SoftBank to design its own mobile processors and have them fabricated by foundry providers like Samsung or GlobalFoundries. There’s the possibility of SoftBank raising billions of dollars in new annual revenue by acting like Qualcomm or Intel.

Prior to the takeover, ARM Holdings is content on licensing its processor to other companies. SoftBank can now act like the real emperor of mobile application processors. There is no such thing as perpetual licensing rights. As the new owner of ARM Holdings, SoftBank has the prerogative to do what it pleases with the ARM processor technology/architecture. It has the power to not renew the licenses of all ARM-based semiconductor firms like Qualcomm and MediaTek.

This kind of control over a very important part of smartphones and smart gadgets makes SoftBank a great long-term investment.

Taking Control of A Very Important Part Of Mobile Computing

SoftBank has the absolute power to give or deny the right to build ARM processors. ARM Holdings’ processor is inside 95% smartphones today.  SoftBank has the ultimate discretion to raise licensing fees it charges on all firms who use ARM-based processors. Pure-play foundry firms like GlobalFoundries and Taiwan Semiconductor (TSM) are now also under the thumb of SoftBank. TSMC and GlobalFoundries also have to pay licensing fees for all the ARM processors they manufacture for companies like Apple and Qualcomm.

SoftBank likely incurred additional debt in its takeover of ARM Holdings. However, SoftBank can easily raise money now that it has the prerogative to dictate the future of ARM licensees like Qualcomm, Apple and TSMC. Qualcomm and Apple’s future is endangered if they reject any suggestion of higher licensing fee from SoftBank.

My point is that SoftBank is now at the center of the entire smart devices industry. Investing on SFTBY is a no-brainer. Most internet-connected and smart appliances/gadgets will likely use SoftBank’s ARM processors.

Intel Also Realized The Threat From SoftBank

I suspect SoftBank’s takeover of ARM Holdings last month is also a factor why x86 processor-owner Intel (INTC) was compelled to license ARM’s Artisan Physical IP technology. Intel extended a peace offering, telling SoftBank that it is giving up on forcing its x86 Atom processors on mobile gadgets.

Intel likely felt threatened by SoftBank owning ARM Holdings. It knows SoftBank has the resources and access to cheap Japanese bank loans to make ARM Holdings a real semiconductor firm. As the Intellectual Property owner of the ARM architecture, ARM Holdings can quickly manufacture ARM-based processors. SoftBank could design its own mobile chips and probably rent Intel’s upcoming 10-nanometer chip production platform.

SoftBank is now also the leader in the coming Internet of Things revolution. Much as I hate to admit it, energy-efficient ARM processors, not Intel’s x86 chips, are more likely to dominate the Internet of Things. By licensing the ARM Physical IP technology, Intel told SoftBank that is willing to be just another foundry service provider like TSMC or GlobalFoundries.

Intel conveyed that it is willing to ride the ARM-based Internet of Things revolution too. SoftBank now owns the exclusive right to ARM processors which are likely to power the 28 billion Internet of Things devices by 2020. This fact is enough justification for the $32 billion buy-out of Arm Holdings.

SoftBank Stock Forecast
(Source: MIT Technology Review)

Conclusion

SoftBank is a good addition to your long-term portfolio. This Japanese holding company made big money on its early investment in Alibaba (BABA). I bet that this investment on ARM Holdings will also repeat the big capital gains made from the early-bird $20 million investment in Alibaba.

Ten years from now, there is the strong possibility that all smart devices will run on ARM processors, not Intel’s x86 chips. The $32 billion valuation of ARM might just be a pittance compared to what it will be worth a decade from now. Imagine the potential economic windfall from SoftBank not renewing the licenses of Nvidia, Qualcomm, TSM, and Apple.

SoftBank could become the sole supplier of ARM processors for smart devices and computers. It will have the prerogative to charge any price it wants so that Apple can continue selling its pricey iPhones and iPads.

My buy recommendation for SFTBY is also fortified by the very positive algorithmic forecasts from I Know First. This stock has very strong buy signals based on its near-term and long-term algorithmic market trend forecasts. If you can’t appreciate my forward looking on SoftBank’s future empire in mobile and Internet of Things, just trust the deep-learning computers of I Know Research. They said go long on SFTBY, heed it and you are likely to make capital gains pretty soon.

SoftBank Stock Forecast
The long-term technical indicators are also suggesting a Strong Buy signal for SoftBank.

SoftBank Stock Forecast
(Source: Investing.com)


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