Softbank to sell 25% stake in ARM Holdings to Saudi-backed investment group | Hacker News Reader

Softbank to sell 25% stake in ARM Holdings to Saudi-backed investment group

bbc.co.uk

102 pointsdan123458 comments

The saudis are desperate to use their sovereign wealth fund to diversify (i.e. save) their economy.

The country has a lot of problems but I'm legitimately excited to see what they come up with. The first step to getting out of a hole is to recognize you're in one, and they have.

With any luck, economics-driven policy will lead to social change as well.

They have $3.5B of it tied up with Uber at the moment. Not sure how prudent that was, and I don't mean the recent controversy. Just seems like a big bet on something that depends on future investments of the same magnitude to keep afloat until self-driving cars are really a thing.

Edit: Disagree? Please reply. This isn't a general Uber bash. It's known that they run at a very large quarterly losses (-$800M reported for Q3/16). Making a huge investment does come with the downside that you're the go-to when funds are running low. You have to keep buying in, or hope someone else does. If the idea is to diversify away from risk, it seems an odd choice. I'm open to learning why it was a good idea.

The idea is to diversify away from oil, not to diversify away from risk.

Well, I assumed diversify away from "high risk", given that oil is pretty "high risk" over the long term for them.

Not as big of a deal as you imagine. Diversifying now is the optimal scenario. Booms busts they'll be ok

These are seemingly non-correlated assets. Saudi Arabia is (apparently) minimizing their diversifiable risk, not minimizing their investment in risky sectors altogether.

Another point is $3.5b sounds like a big number but likely a rather small portion of the Saudi's sovereign wealth fund. Putting a low % of your portfolio into risky, but potentially highly valueable asset is generally seen as a reasonable thing to do.

I agree it's small in their terms, but as mentioned, the concern is that it's not small in terms of who Uber might go back to when they are running low. Sort of like a poker game where you have to keep buying in to keep the house afloat.

The problem is risk vs upside. If you make a 3.5 billion dollar bet for less than 100% and it became the largest company on eart that's not a huge ROI.

I'm not very optimistic about Uber, but where else can you potentially get a 10x return on a 10 digit investment?

Lot's of smaller but good investments vs a lower quality bad investment.

The best option for sovereign wealth funds is probably buying the widest possible swath of companies that reach some basic criteria. I suspect they do massive deals because internal politics means being in charge of such a deal let's you gain more power even if it costs the country on average because a huge win on a 3.5 billion investment means little at that scale.

Splitting up money into a bunch of smaller investments significantly decreases your chance of an outsized return and increases your chance for achieving the mean return for that asset class.

A sovereign wealth fund already faces this problem as 3.5 billion is peanuts (aka under 1%) to them. Now if they could get a 10x return in one year that would be something, but a tiny odds for a 10x return in a decade is not worth the significant risks involved in such a terrible investment.

You might be correct that Uber turns out to be a terrible investment. But there are a lot of smart people out there that disagree with you. And, unlike you, a lot of them have gotten to look at the details of Uber's financials.

I share your skepticism, but I'm not super confident in that belief.

If Uber can stay afloat until we have full adoption of self-driving cars, they will profit big-time. They will have a fleet of cars at almost no cost to them as car owners get in line to sign up to rent out their car during "off" periods.

That's the bit I wondered about. If they are losing 120 to 800 million per quarter, are there enough investors willing to wait through those losses for X years? I've heard wildly varying estimates for the value of X.

Another way of looking at this is they want to invest 0.5% of the worlds capital you can't get above 'market' rates for very long. And the longer you do, the harder this becomes. However, you can easily get below market rates.

Backing the top 10 VC funds as LPS -- then again they're probably already doing that.

Supposedly according to internal accounting the sovereign wealth fund is worth $2T as in Trillion. If they are able to capture and sell their oil reserves accordingly.

It's not clear to me how making investments in companies not based in Saudi Arabia help them diversify their economy. They need to be investing in building domestic companies not based on oil. This will require investments in infrastructure, education, health care, etc.

And, as you said, social liberalization as well.

When all your assets are tied to your currency and your currency tanks life gets hard. Having foreign assets you can divest and spend is useful, and is one of the things (along with oil transactions) that props up the US dollar's value. Because everyone ends up buying T bills as a simple way to hold assets denominated in dollars.

Japan in the 80's simply started buying up America (real estate, businesses) because of our recession, and a lot of people already worried about automobile manufacturing had a whole new set of worries. But then Japan had its own recession in the 90's and a lot of divestiture happened.

> It's not clear to me how making investments in companies not based in Saudi Arabia help them diversify their economy.

Maybe they're not trying to diversity the economy as much as the economic position of the royal family? Saudi Arabia isn't a democracy, and it still has an actual sovereign.

Norway's wealth fund invest primarily abroad as well for the simple reason that while it is important to diversify the local economy, pouring vast amounts of money into the local economy drives inflation.

The Saudi's are already pouring money into the local economy as well. But there's only so fast their economy can make efficient use of that money without overheating.

Investing abroad is a way of creating a lasting income stream without those problems.

This inflation argument sounds right to me.

Can you point to an article which talks more about how SWFs balance their in-country out-country investment?

I don't have any handy articles, I'm afraid. The Norwegian fund that generally gets discussed only invests out of country. There is another fund that invests in Norway (as well as a number of government development banks), but it is much smaller.

There are more details about both the global and domestic funds here [1], which does contain some bits on how it splits its investments and has a decent number of references.

[1] https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...

Search for the term Dutch disease and you'll turn up a lot of papers on the topic.

Wouldn't diversifying their economy would mean making major investments in local technology firms? This sounds less like trying to diversify their economy, and more about trying to secure a post-oil source of wealth for the ruling elite.

the ruling elite is their economy.

They don't care about the local economy though. Just wealth for the ruling class. They can buy slaves/workers when they need them, discard them when they don't, and soon enough they'll be able to just buy a robot army to keep it all together.

> With any luck, economics-driven policy will lead to social change as well.

don't count on it. the regime isn't interested in social change. they're interested in retaining wealth and power for another 100 years and trying to adapt for the fact that their oil wealth only has another 30(ish) years left.

the priorities of the Saudi regime are very clear. they haven't been secretive. they promote Wahabism/Salafism and are waging a cold-war with Iran and every other Shia majority country in the world. They are religious fanatics driven by theological concerns.

Nah, they are pragmatic rulers who use religion and war (and religious war) as an extension of politics. Their legitimacy is entirely based on being the custodians of Mecca, so they make sure Mecca remains at the forefront of people's minds. The Wahabi royals are not unlike certain politicians who brand themselves "defenders of traditional family values" and then whip up hysteria about "war on Christmas": they manufacture conflict to strengthen their own legitimacy. Without conflict they become irrelevant, so they'll make sure conflicts never end.

It's such an old game, but it's incredible how well it still works all over the world.

</sarcasm>

Yeah, diversify their economy and expand their power, both military and soft power (terrorism) in order to maintain their grip on the peninsula as well as on global Islam.

> With any luck, economics-driven policy will lead to social change as well.

Don't count on it. All they seem to ever come up with is more modern ways to implement backwards laws.

I think the headline is misleading at best.

It's transferring 25% of its stake into fund into which it has joint ownership. The headline makes it sound like its dumping its investment.

The mods changed the BBC's clickbait to something more accurate. Thanks mods!

I, for one, much prefer TheRegister's headline:

> Softbank tears off chunk of ARM, feeds it to hungry Saudis

https://www.theregister.co.uk/2017/03/08/quarter_arm_sold_sa...

El Reg's headlines are the best. Full of snark and wit.

Graphic

So, does the availability of almost infinite oil money(i know, maybe not a realistic assumption, just an hypothesis) change the chances of ARM overtaking Intel in servers or PC's ?

Legacy device markets are pretty firmly entrenched on both sides. Intel with server/PC MCUs, ARM with any silicon at the SoC/MPU level and below for smartphones, embedded systems, etc. (also gaining share from migration away from MIPS and Power architectures). Throwing money at these mkts probably won't help much, and many are low growth anyways.

The interesting, high-growth spaces where ARM and Intel are currently battling for hardware mkt share are the IoT Gateways market and the autonomous vehicle SoC market.

The supporting software ecosystem will also become increasingly important over the next few years - this is a spot where ARM could really outpace Intel if it receives a big infusion of resources (see ARM mbed cloud/OS).

High performance computing is also a competitive space. While it has historically been dominated by x86, next generation architectures, such as ARM or GPUs are expected to be necessary as the systems grow in size.

With AMD presenting a formidable product ARM's long-term outlook of becoming the runner-up in the server market has worsened considerably. The hype surrounding low power ARM-SoCs has already fizzled since several years because of their bad performance per watt. So I'd say ARM won't overtake anyone in servers or PC's in the near future.

the RISC vs CISC battle was won by CISC decades ago.

RISC is better in low compute power. CISC is better for high compute areas.

This is outright false. Modern CISC chips are risc architectures with a x86 conversion layer in the front. Both Intel and AMD use this approach.

Also, the reason risc doesn't do well might just be because of more development to x86.Jim Keller estimates that due to legacy bloat of x86, a fully developed arm chip will be 15-30% more efficient than an equivalent x86 chip.

I suspect RISC vs. CISC just doesn't matter as much as people think. Performance depends more on other design choices, and and market success on licensing model, compatibility, etc.

do you have a source on this? I'm curious to know more about the ARM processor market. Is AMD the leader over Intel? Who is the market dominator in this niche?

ARM CPUs outsell Intel by well over an order of magnitude or more in terms of number of CPUs, but Intel absolutely crush ARM Holdings in terms of revenue.

In fact, at least PPC and MIPS (at least as of a couple of years ago) are also in the running for 2nd and 3rd largest CPU architecture in termsof number of CPUs - but as with ARM they're dwarfed by Intel in terms of revenue, as all three have a licensing model and target markets with much lower price per unit than what Intel does.

There are other potential architectures up there, though primarily used as microcontrollers, but getting accurate numbers is very hard.

I suspect the aggregate revenue of arm chips is greater than Intel, but it's fragmented and hard to track

Given the massive volume difference it's possible you're right.

Getting reliable numbers for the CPU market in general is annoyingly hard. I'd really like to see how the numbers for PPC and MIPS are developing.

Also older CPUs that are now treated as microcontrollers, like Z80 and 6502 descendants.

Western Design Centre has a statement about annual volume in the hundres of millions for 6502 descendants on their website [1], which if true means it's somewhere in the same region as MIPS, PPC and x86 for one of the top 4-5 spots after ARM.

[1] http://www.westerndesigncenter.com/wdc/

Looking at Global Foundries, no.

Softbank also just started a merger of Intelsat and OneWeb. https://techcrunch.com/2017/02/28/oneweb-is-merging-with-int...

Saudis own stakes of Turkish Telekom. And guess what telekom company is worse in Turkey.

Saudis only milk. No research or development.

I was always wondering why Softbank bought ARM. ARM is of course market leading processor design company but it is almost solely fabless and intellectual property company. I don't see how ARM would benefit Softbank.

Thats nice. For anyone wondering the Saudi-backed investment group is called "Mubadala".

Mubadala owns 100% of GlobalFoundries ( which brought the hardware division from IBM)

Mubadala is Emirati, not Saudi. From the article, it seems that just the Vision Fund run by Mubadala has the backing of the Saudis

Mubadala is Abu Dhabi's sovereign development company; its "mandate is to facilitate the diversification of Abu Dhabi’s economy" [1]. The SoftBank Vision Fund is "managed in the United Kingdom by a subsidiary of" SoftBank Group Corp [2].

Saudi Arabia's "Public Investment Fund was established in 1971 to provide financing support for projects of strategic significance to the national economy" [2]. It is the Saudi analog to Abu Dhabi's Mubadala. PIF is an LP in the SoftBank Vision Fund, albeit a significant and likely influential one.

[1] https://en.m.wikipedia.org/wiki/Mubadala_Development_Company

[2] http://www.softbank.jp/en/corp/news/press/sb/2016/20161014_0...

Mubadala also owns a large part of AMD iirc. edit: they sold the stake for $600M two days ago

AMD stock has had a hell of a run over the last year.. wonder if they anticipate that that slowing down

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