Apple signs long term licensing deal with ARM as the latter prepares to go public raising $52B

Chip design company ARM is planning to go public with an IPO (Initial Public Offering) valued at around $52 billion. Apple is one of several tech firms that will be buying shares in the IPO (should we style it as iPO?) along with AMD, Intel, NVIDIA, and Samsung. The filing submitted by ARM calls for it to sell 95.5 million American Depository Receipts (ADRs) at a price range of $47 to $51 each. Japan's SoftBank is the current owner of ARM and will still own 90.6% of the company's shares following the offering.

Should investor demand prove to be stronger than expected, the price of the ADRs could be increased. The company generates revenue from royalties based on the average selling price of a customer's ARM-based chip or a fixed-rate per chip. ARM's architecture can be found in 99% of the world's smartphones.

Speaking of Apple and ARM, Reuters reports that the filing for the IPO reveals that the two companies have signed a new contract for new chip technology that goes past 2040. With the deal, Apple will continue to license ARM's chip architecture that it will use to design its A-series and M-series chips. The A-series chips are used to drive the iPhone and the basic iPad models while the M-series chips are found in more advanced iPad tablets and inside Macs.

Apple was one of the companies that helped found ARM in 1990 along with Acorn Computers and VLSI Technology. An ARM processor chip was used in Apple's hand-held Newton Personal Digital Assistant (PDA). It's hard to believe considering Apple's more recent success starting with the iMac, but the Newton was a major crash landing for Apple. But while Newton flopped, ARM's architecture, with its battery-sipping capabilities, became dominant in mobile phones.

ARM traded on the London Stock Exchange and Nasdaq from 1988 to 2016 when SoftBank took the company private in a deal valued at $32 billion. SoftBank is not receiving any of the proceeds from the IPO.

The ARM IPO almost didn't happen. Three years ago graphics chip maker Nvidia agreed to buy ARM for $40 billion. But Qualcomm and the FDA both sought to block the Nvidia-ARM deal and the regulatory hurdles were too high to overcome.

The average investor will probably not be able to get his or her hands on any ARM shares at the IPO price since it appears to be a hot issue. You might have to wait for the shares to start trading to take a position in ARM.