Investors sound alarm over Arm’s exposure to China

Prospective investors in Arm’s initial public offering have raised concerns over the UK chip designer’s exposure to China, after the company warned of “significant risks” in the country.

Managers at four separate funds considering an investment in Arm told the Financial Times that the prospectus for the planned listing on Nasdaq in September confirmed some of their fears about the global semiconductor industry amid souring relations between Washington and Beijing.

Arm revealed in its IPO filing on Monday that it made a quarter of its revenues from China and warned that it was “particularly susceptible” to economic and political risks, including tensions between China and the US or UK.

Some investors said these issues overshadowed SoftBank’s pitch that Arm would benefit from the demand for chips that has propelled US chipmaker Nvidia to a $1tn market capitalisation.

“When you read through the risks that Arm has flagged here, it seems a lot for an investor to digest,” said one institutional investor, who added that they had yet to decide whether to invest in the IPO. “They are asking the market to buy what they admit are some pretty big China risks but at Nvidia multiples, and that will take some effort.”

An internal transaction earlier this month between SoftBank Group and its Vision Fund — an investment vehicle that the Japanese conglomerate manages — valued Arm, whose designs are in 90 per cent of the world’s smartphones, at $64bn. $Arm Holdings (ARM.US)$ $SoftBank Group (ADR) (SFTBY.US)$