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With ARM deal, Softbank bets on internet of things and on UK

Masayoshi Son, SoftBank chairman, speaks at a press conference in London on July 18.

TOKYO -- Masayoshi Son, the charismatic 58-year-old chairman of the Japanese telecommunications group SoftBank, is known to sometimes make outlandish bets. Four years after making one of those gambles, when SoftBank acquired U.S. telecommunications company Sprint, he has another one; the hastily-arranged $30 billion acquisition of U.K. chip designer ARM.

"The next big paradigm shift is coming with the [internet of things]. I believe the IoT will be a big opportunity for all mankind and all the products in the world," Son said, explaining the reason for the deal in a press conference in London. "This is the beginning of a paradigm shift and we are going to invest, believing in the future."

ARM is a global leader in smartphone chip design. Some 15 billion chips based on its technology were shipped last year, and Son believes that the U.K. company can extend its market share into the IoT market. SoftBank intends to privatize the company through a deal worth $30 billion, or 17 pounds in cash for each share in ARM -- a 43% premium to its closing price last week.

The size of SoftBank's investment -- the biggest in its history -- speaks volumes about the belief Son has about the IoT being the next big thing. "The internet will interconnect everything that has a semi-conductor inside. Any consumer electronics, any automobile, any infrastructure in society, they will all get connected, that is my view," noted Son, adding that the amount of these devices will soon exceed the number of people on earth.

He pointed out that the next five years will see a period of investment to make that future vision become reality; Son said that by taking ARM private, the company can focus on making investments in engineers and research and development without worrying about its quarterly earnings.

"This will be our first and most important big bet for the future," Son said. "Softbank and ARM will drive the next generation paradigm shift, that is my passion."

Industry executives believe this is an astute move on ARM's part as well.

"The Softbank-ARM deal is actually mainly about ARM's endless efforts to gain more control in setting up a general industry standard for future connected devices in smart homes, smart cities or autonomous cars, and to solve security concerns as many connected items start to communicate with each other," said one senior industry executive who asked not to be named. "If ARM's bet is successful and it can dominate the industry standard of future connected devices, it would definitely be another cash cow for the U.K.-based firm."

The executive continued: "Intel is actually working hard to set up its own standard regarding future connected devices as well. I think that's why ARM is eager to team up with a service provider like Japan's Softbank to make bolder and more aggressive bets and to increase its chance of dominating the emerging industry standard."

Endorsement of the U.K.

Son said that it was only two weeks since he told ARM's chairman Stuart Chambers of his intention to acquire the company, a hasty decision which had prompted some to speculate that the acquisition was opportunistic after the British pound plunged against the Japanese yen following Britain's vote to leave the European Union. Son refuted such claims, saying that the investment was his way of endorsing the U.K as a place to do business.

"Brexit did not affect my decision ... I would have made this decision at this time regardless of Brexit," he said. He added that he made the decision now because he had enough cash on his hands after the unwinding of SoftBank's stakes in Chinese e-commerce company Alibaba Group Holding, Japanese smartphone game developer GungHo Online Entertainment, and Finnish mobile game provider Supercell.

SoftBank said it would keep ARM's headquarters in the U.K., and announced plans to make Son's intention of doubling the number of ARM employees in the U.K. in the next five years "legally binding."

"The multiple of the price we are paying is actually 60 times last year's net income [at ARM]. That means the company has to sustain its growth and success for many years to come," Son said. "I cannot hit and run. I have to truly believe in the future of the U.K. This is my big bet."

Nikkei staff writers Debby Wu and Cheng Ting-Fang in Taipei contributed to this story.

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