The SoftBank Group on Tuesday reported a 97% drop in quarterly profit and also confirmed the collapse of a deal to sell chip designer Arm, mounting pressure on the Japanese conglomerate to support its sagging shares.
Masayoshi Son's investment giant squeezed out a net profit of 29 billion yen ($251 million) in the October-December quarter, a sliver of the record 1.2 trillion yen profit it booked a year earlier when its tech portfolio rallied.
Separately, it shelved the sale of Arm to U.S. chipmaker Nvidia Corp. due to regulatory hurdles, the companies said, marking the collapse of what would have been a record deal for the industry valued at as much as $80 billion.
It also marks a major setback to SoftBank's fundraising plans just as valuations again come under pressure, from both growing investor caution and concerns about China's regulatory crackdown on tech firms.
"We were in the middle of a blizzard and the storm has not ended, it has got stronger," Son, SoftBank's founder and CEO, told a briefing following the release of the results.
Arm named a new CEO on Tuesday who it said would help the British firm seek a public listing before March 2023.
The cash-and-stock deal was announced in 2020 and would have been worth as much as $80 billion. But the U.S. Federal Trade Commission sued to block it in December, arguing that competition in the nascent markets for chips in self-driving cars and a new category of networking chips could be hurt if Nvidia carried out the purchase.
The buyout also faced scrutiny in Britain and the European Union amid concerns that it could push up prices and reduce choice and innovation. It had yet to receive approval in China, which has previously withheld approval of cross-border chip acquisitions.
The sale would have marked an early exit from Arm for SoftBank, which acquired it for $32 billion, and the collapse of the deal marks a major setback to the Japanese conglomerate’s efforts to generate funds at time when valuations across its portfolio are under pressure.
Arm said in a separate statement that had appointed Rene Haas as its CEO and member of the board, effective immediately. A chip industry veteran, Haas joined Arm in 2013 and before that worked seven years at Nvidia.
"Rene is the right leader to accelerate Arm's growth as the company looks to re-enter the public markets," Son said in the statement from Arm.
"We are excited about the opportunity to be a publicly listed company again," said Haas in an interview with Reuters.
The newly appointed CEO declined to state where the company planned to go public.
SoftBank said that Arm's net sales surged 40% to $2 billion in the nine months to December from the year-ago period.
An Arm acquisition would have put Nvidia into even more intense competition with rivals in the data center chip market such as Intel and Advanced Micro Devices.
Arm licenses its architecture and technology to customers such as Qualcomm, Apple and Samsung Electronics that design chips for devices from mobile phones to computers.
Nvidia has become the most valuable U.S. chip company on the strength of its graphic processor chips. Although still seen as crucial for gaming, graphic processors have become much more widely used for artificial intelligence and other advanced fields.
The value of the deal, which depended on Nvidia's stock price, was originally pegged at about $40 billion and rose with Nvidia's stock price to $80 billion late last year, though the California company's stock has fallen since.
Nvidia said in a statement that it would retain its 20-year Arm license.
The Japanese investment giant said it would recognize as profit in the fourth quarter a $1.25 billion breakup fee that Nvidia had deposited.
The collapse of the deal underscores again the difficulty that companies face in convincing antitrust regulators and governments to greenlight large tech deals, especially in the semiconductor industry.
Last week, a $5 billion deal between Taiwan GlobalWafers and German chip supplier Siltronic fell apart after German regulators failed to approve it on time.
Among other examples, in 2018, Qualcomm walked away from a $44 billion deal to buy NXP Semiconductors after failing to secure Chinese regulatory approval, and former U.S. President Donald Trump blocked microchip maker Broadcom's proposed takeover of Qualcomm.
Investors are growing cautious about tech firms promising future profits as central banks pare back stimulus. SoftBank has also been whiplashed by exposure to China, where regulators have taken action against tech firms.
Shares of e-commerce giant Alibaba, in which SoftBank has a stake, dropped a fifth in the three months to the end of December.
The Vision Fund unit reported its investment gain tumbled to 111.5 billion yen during the quarter from 1.4 trillion yen a year earlier.
"Even though some of the public companies have come down in value, there have been significant follow-on funding rounds where outside institutional investors have led those rounds," Vision Fund's Chief Financial Officer Navneet Govil told Reuters.
Many SoftBank portfolio companies are trading below their listing price, with office-sharing firm WeWork, ride hailer Grab and used-car platform Auto1 all falling during the quarter.
Such assets can be sold down or used as collateral for loans as SoftBank invests through its Vision Fund unit, which runs the $100 billion Vision Fund and a smaller second fund and has become the priority for the group.
Vision Fund 2, which had $51 billion in committed capital at the end of 2021, had invested $43.1 billion in more than 200 startups. Industry observers have noted a disconnect between frothy private markets and skepticism in public markets, but Govil said that gap might be closing.
"We are seeing some healthy rebalancing ... at some of the more extreme ends of the market," he said. "We did turn down quite a few transactions because we thought valuations were rich."
Portfolio companies, including sports e-commerce firm Fanatics, held funding rounds during the quarter. Vision Fund has distributed $44.2 billion to its limited partners across both funds.
The earnings come at a watershed moment for the conglomerate as senior executives exit the firm, including Chief Operating Officer Marcelo Claure, who led the restructuring of WeWork and launched the group's Latin American-focused fund.
SoftBank launched a 1 trillion yen buyback in November. Group shares closed down 0.9% ahead of the earnings and have lost about half since highs in March last year.
