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As filed with the Securities and Exchange Commission on September 5, 2023.

Registration Statement No. 333-274120

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Arm Holdings plc

 

 

 

England and Wales   3674   Not applicable
(State or other jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
incorporation or organization)   Classification Code Number)   Identification Number)

110 Fulbourn Road

Cambridge CB1 9NJ

United Kingdom

Tel: +44 (1223) 400 400

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Arm, Inc.

120 Rose Orchard Way

San Jose, CA 95134

Tel: +1 (408) 576-1500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Justin R. Salon

R. John Hensley

John T. Owen

Morrison & Foerster LLP

2100 L Street, NW, Suite 900

Washington, D.C. 20037

+1 (202) 887-1500

 

Kenneth A. Siegel

Jesse S. Gillespie

Morrison & Foerster LLP

Shin-Marunouchi Building, 29th Floor

5-1, Marunouchi 1-Chome

Chiyoda-ku, Tokyo, Japan 100-6529

+81-3 3214 6522

 

Richard D. Truesdell, Jr.

Derek J. Dostal

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

+1 (212) 450-4000

 

 

Approximate date of commencement of proposed sale to public:

As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act.

Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), shall determine.

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

 


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The information contained in this prospectus is not complete and may be changed. The selling shareholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and the selling shareholder is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion

Preliminary Prospectus dated September 5, 2023.

95,500,000 American Depositary Shares

(Representing 95,500,000 Ordinary Shares)

 

 

LOGO

 

 

This is an initial offering of American depositary shares (“ADSs”) representing ordinary shares of Arm Holdings plc.

All of the ADSs to be sold in this offering are currently held by the selling shareholder identified in this prospectus. We are not selling any of the ADSs in this offering and will not receive any proceeds from the sale of the ADSs by the selling shareholder in this offering. Each ADS represents the right to receive one ordinary share, nominal value £0.001 per share, and may be evidenced by American depositary receipts (“ADRs”).

Prior to this offering, there has been no public market for the ADSs or our ordinary shares. The initial public offering price per ADS is estimated to be between $47.00 and $51.00. We have applied to list our ADSs on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “ARM”.

We are a “foreign private issuer” as defined under the U.S. federal securities laws and, as such, will be subject to reduced public company reporting and stock exchange governance requirements. See “Management and Executive Remuneration—Foreign Private Issuer Exemption” for additional information.

SoftBank Group Corp. (“SoftBank Group”) is expected to beneficially own approximately 90.6% of our outstanding ordinary shares following the completion of this offering (or approximately 89.9% if the underwriters exercise in full their option to purchase additional ADSs from the selling shareholder). As a result of SoftBank Group’s ownership, after the completion of this offering, we will be a “controlled company” within the meaning of Nasdaq rules. See “Management and Executive Remuneration—Controlled Company Status.”

Advanced Micro Devices, Inc., Apple Inc., Cadence Design Systems, Inc., Google International LLC, Intel Corporation, MediaTek Inc.’s affiliated entities, NVIDIA Corporation, Samsung Electronics Co., Ltd., Synopsys, Inc. and TSMC Partners, Ltd. (collectively, the “Cornerstone Investors”) have, severally and not jointly, indicated an interest in purchasing up to an aggregate of $735 million of the ADSs offered in this offering at the initial public offering price and on the same terms and conditions as the other purchasers in this offering. Because these indications of interest are not binding agreements or commitments to purchase, any of the Cornerstone Investors may determine to purchase more, fewer, or no ADSs in this offering, or the underwriters may determine to sell more, fewer, or no ADSs to any of the Cornerstone Investors. The underwriters will receive the same underwriting discount on any ADSs purchased by the Cornerstone Investors as they will from the other ADSs sold to the public in this offering.

 

 

Investing in our ADSs involves a high degree of risk. Before buying any ADSs, you should carefully read the discussion of material risks of investing in our ADSs in “Risk Factors” beginning on page 22 of this prospectus.

 

     PER ADS      TOTAL  

Initial public offering price

   $                $            

Underwriting discounts and commissions

     

Proceeds, before expenses, to the selling shareholder

     

 

The underwriters may also exercise their option to purchase up to an additional 7,000,000 ADSs from the selling shareholder at the initial public offering price, less the underwriting discounts and commissions, for 30 days after the date of the final prospectus. We will not receive any proceeds from the sale of such additional ADSs by the selling shareholder.

Raine Securities LLC is acting as our financial advisor in connection with this offering.

The underwriters expect to deliver the ADSs against payment in U.S. dollars to purchasers on or about                 , 2023.

Neither the Securities and Exchange Commission nor any U.S. state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

Barclays   Goldman Sachs & Co. LLC   J.P. Morgan   Mizuho

(in alphabetical order)

 

 

 

BofA Securities   Citigroup   Deutsche Bank Securities   Jefferies

 

BNP PARIBAS   Credit Agricole CIB  

MUFG

  Natixis   Santander   SMBC Nikko

 

 

 

BMO Capital Markets  

Daiwa Capital Markets America

 

            Guggenheim Securities

 

HSBC

 

IMI - Intesa Sanpaolo

 

Independence Point Securities

KeyBanc Capital Markets

 

Loop Capital Markets

 

Ramirez & Co., Inc.

 

      Rosenblatt      

 

SOCIETE GENERALE

 

TD Cowen

 

Wolfe | Nomura Alliance

The date of this prospectus is              , 2023.


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TABLE OF CONTENTS

 

     Page  

ABOUT THIS PROSPECTUS

     ii  

NOTE REGARDING TRADEMARKS, TRADENAMES AND SERVICE MARKS

     ii  

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

     iii  

NON-GAAP FINANCIAL MEASURES

     iii  

INDUSTRY AND MARKET DATA

     iii  

GLOSSARY OF CERTAIN TERMS

     iii  

PROSPECTUS SUMMARY

     1  

THE OFFERING

     16  

SUMMARY FINANCIAL DATA

     19  

RISK FACTORS

     22  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     79  

USE OF PROCEEDS

     81  

DIVIDEND POLICY

     82  

CORPORATE REORGANIZATION

     83  

CAPITALIZATION

     85  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     86  

BUSINESS

     123  

MANAGEMENT AND EXECUTIVE REMUNERATION

     145  

RELATED PARTY TRANSACTIONS

     164  

PRINCIPAL AND SELLING SHAREHOLDER

     172  

DESCRIPTION OF SHARE CAPITAL AND ARTICLES OF ASSOCIATION

     174  

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

     195  

ORDINARY SHARES AND ADSs ELIGIBLE FOR FUTURE SALE

     207  

MATERIAL TAX CONSIDERATIONS

     210  

UNDERWRITING

     218  

EXPENSES RELATED TO THE OFFERING

     231  

LEGAL MATTERS

     232  

EXPERTS

     232  

ENFORCEMENT OF CIVIL LIABILITIES

     233  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     234  

INDEX TO FINANCIAL STATEMENTS

     F-1  

 

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Neither we, the selling shareholder nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. Neither we, the selling shareholder nor the underwriters take any responsibility for, or provide any assurance as to the reliability of, any other information that others may give you. We, the selling shareholder and the underwriters are offering to sell ADSs and seeking offers to purchase ADSs only in the U.S. and certain other jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the cover page of this prospectus, regardless of the time of delivery of this prospectus or any sale of ADSs.

For investors outside the U.S.: Neither we, the selling shareholder nor any of the underwriters have taken any action to permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the U.S. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

We are incorporated under the laws of England and Wales and a majority of our outstanding securities is owned by non-U.S. residents. Under the rules of the U.S. Securities and Exchange Commission (the “SEC”), we are eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

ABOUT THIS PROSPECTUS

Prior to the completion of this offering, we underwent a corporate reorganization described under the section titled “Corporate Reorganization,” pursuant to which Arm Limited became a wholly owned subsidiary of Arm Holdings Limited, a holding company with nominal assets and no liabilities, contingencies or commitments, which has not conducted any operations prior to this offering other than acquiring the entire issued share capital of Arm Limited. On September 1, 2023, Arm Holdings Limited re-registered as a public limited company and changed its name from Arm Holdings Limited to Arm Holdings plc.

Unless otherwise indicated or the context otherwise requires, in this prospectus, “Arm,” the “Company,” “we,” “us” and “our” refer to (i) Arm Limited and its consolidated subsidiaries prior to the completion of our corporate reorganization, (ii) Arm Holdings Limited and its consolidated subsidiaries after the completion of our corporate reorganization and prior to the re-registration of Arm Holdings Limited as a public limited company and (iii) Arm Holdings plc and its consolidated subsidiaries after the re-registration of Arm Holdings Limited as a public limited company. See “Corporate Reorganization” and “Description of Share Capital and Articles of Association.”

NOTE REGARDING TRADEMARKS, TRADENAMES AND SERVICE MARKS

This prospectus includes trademarks, tradenames and service marks, certain of which belong to us and others that are the property of other organizations. Solely for convenience, trademarks, tradenames and service marks referred to in this prospectus appear without the ®, TM and SM symbols, but the absence of those symbols is not intended to indicate, in any way, that we will not assert our rights or that the applicable owner will not assert its rights to these trademarks, tradenames and service marks to the fullest extent under applicable law. We do not intend our use or display of other parties’ trademarks, tradenames or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Our fiscal year ends on March 31 of each year. We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). We present our consolidated financial statements in U.S. dollars (“USD”).

We have historically conducted our business through Arm Limited, and therefore, our historical consolidated financial statements included in this prospectus present the consolidated results of operations of Arm Limited and its subsidiaries. The consolidated financial statements included in this prospectus do not give effect to our corporate reorganization described in the section titled “Corporate Reorganization.”

The financial information contained in this prospectus does not amount to statutory accounts within the meaning of section 434(3) of the U.K. Companies Act 2006 (the “Companies Act”).

NON-GAAP FINANCIAL MEASURES

This prospectus contains certain financial measures that are not presented in accordance with GAAP, including Non-GAAP operating income, Non-GAAP net income from continuing operations and Non-GAAP free cash flow, that are not required by, or prepared in accordance with, GAAP. We refer to these measures as “non-GAAP financial measures.” See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operating Metrics—Non-GAAP Financial Measures” for our definitions of these non-GAAP financial measures, information about how and why we use these non-GAAP financial measures and a reconciliation of each of these non-GAAP financial measures to its most directly comparable financial measure calculated in accordance with GAAP.

INDUSTRY AND MARKET DATA

This prospectus contains estimates, projections and other information concerning our industry, our business and the markets for our products, including, but not limited to, our general expectations and market position, market opportunity and market size. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry and general publications, government data and similar sources. While we are responsible for the accuracy of such information and believe our internal company research as to such matters is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source.

In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Special Note Regarding Forward-Looking Statements.”

GLOSSARY OF CERTAIN TERMS

The following are abbreviations, acronyms and definitions of certain terms used in this document:

 

   

“ADAS” means advanced driver assistance systems.

 

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“AI” means artificial intelligence.

 

   

“Arm China” means Arm Technology (China) Co. Ltd, an entity that operates independently of us and is our single largest customer. Acetone Limited, an entity controlled by SoftBank Group and in which we own a 10% non-voting interest, owns approximately 48% of Arm China. Our 10% non-voting interest in Acetone Limited represents an approximate 4.8% indirect ownership interest in Arm China.

 

   

“Armv9” means the ninth version of the Arm instruction set architecture.

 

   

“Articles” means our articles of association to be in place upon completion of this offering.

 

   

“ASP” means average selling price.

 

   

“CE” means consumer electronics.

 

   

“Citibank” means Citibank, N.A., which will serve as the depositary for the ADSs.

 

   

“CPU” means a central processing unit, which executes the instructions of a computer program.

 

   

“CSP” means cloud service provider.

 

   

“design win” means a customer has chosen to use Arm products in a certain future chip design, including future chip designs under existing license agreements.

 

   

“EDA” means electronic design automation, a category of software tools for designing electronic systems such as integrated circuits and printed circuit boards.

 

   

“embedded” means embedded processors, which are processors used in embedded systems such as industrial automation, sensors, signage and transportation, and home appliances, among other things.

 

   

“GPU” means a graphics processing unit, which is used to accelerate the display of complex graphics onto a screen and can also be used for other mathematical applications.

 

   

“IC” means integrated circuit.

 

   

“IoT” means Internet of Things.

 

   

“IP” means intellectual property.

 

   

“IPLA” means our intellectual property license agreement with Arm China, pursuant to which, among other things, we granted Arm China certain exclusive rights to sublicense our IP to PRC customers.

 

   

“ISA” means instruction set architecture, which specifies how software running on a CPU will behave.

 

   

“IVI” means in-vehicle-infotainment.

 

   

“ML” means machine learning.

 

   

“NFC” means near field communication.

 

   

“NPU” means a neural processing unit, which specializes in the acceleration of ML algorithms.

 

   

“OEM” means an original equipment manufacturer.

 

   

“open-source” means software or hardware design that is released under a license in which the copyright holder grants users the rights to use, study, modify or distribute the computer software or hardware design and its source code on the condition that other software using, incorporating, linking, integrating or bundling with such software be disclosed or distributed in source code form, licensed for the purpose of making derivative works or redistributable at no charge.

 

   

“Physical IP” means the physical IP components used in the process of translating a design of complex SoC integrated circuits into a manufactured chip.

 

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“PRC” means, for the purpose of this prospectus, the People’s Republic of China, including the Hong Kong Special Administrative Region and the Macau Special Administrative Region, but excluding Taiwan.

 

   

“RAND” means reasonable and non-discriminatory, which typically is used to describe a voluntary licensing commitment that standards-setting organizations often request from the owner of an IP right that is, or may become, essential to practice a technical standard.

 

   

“RISC” means reduced instruction set computer.

 

   

“SmartNICs” means smart network interface cards.

 

   

“System IP” means components used in an SoC design, other than the CPU, GPU, etc., such as interfaces to external components and on-chip interconnects that bridge functional components within the SoC.

 

   

“System on Chip” or “SoC” means an integrated circuit that combines multiple functional blocks together in a single chip.

 

   

“TLA” means Technology License Agreement.

 

   

“x86” means the x86 family of complex ISAs.

 

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PROSPECTUS SUMMARY

This summary highlights certain information contained elsewhere in this prospectus. This summary may not, and does not purport to, contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and the consolidated financial statements of Arm Limited and the notes to those statements, included elsewhere in this prospectus, before deciding to invest in the ADSs.

Our North Star

Building the future of computing, on Arm. Together. For everyone.

Our Company

Arm is defining the future of computing. Semiconductor technology has become one of the world’s most critical resources, as it enables all electronic devices today. At the heart of these devices is the CPU, and Arm is the industry leader of CPUs. We architect, develop, and license high-performance, low-cost, and energy-efficient CPU products and related technology, on which many of the world’s leading semiconductor companies and OEMs rely to develop their products. Our energy-efficient CPUs have enabled advanced computing in greater than 99% of the world’s smartphones, for the year ended December 31, 2022, and more than 250 billion chips, cumulatively, powering everything from the tiniest of sensors to the most powerful supercomputers. Today, Arm CPUs run the vast majority of the world’s software, including the operating systems and applications for smartphones, tablets and personal computers, data centers and networking equipment, and vehicles, as well as the embedded operating systems in devices such as smartwatches, thermostats, drones and industrial robotics. We estimate that approximately 70% of the world’s population uses Arm-based products, and the scale of Arm’s reach continues to expand, with more than 30 billion Arm-based chips reported as shipped in the fiscal year ended March 31, 2023 alone, representing an approximately 70% increase since the fiscal year ended March 31, 2016.

Today, any company can make a modern computer chip through the unique combination of our energy-efficient CPU IP and related technologies and our unmatched ecosystem of technology partners, and do it cost effectively due to our flexible business model. Each CPU product can be licensed to multiple companies, leading to economies of scale that allow us to charge each licensee only a fraction of what it would cost them to develop internally, while minimizing their risk and time-to-market. With the complexity of CPU design increasing exponentially, over the past decade no company has successfully designed a modern CPU from scratch. We have been innovating at the forefront of compute technology for decades and have established important relationships with the companies driving the future of computing across multiple industries. More than 260 companies reported that they had shipped Arm-based chips in the fiscal year ended March 31, 2023, including the largest technology companies globally (such as Amazon Web Services, Inc. and Alphabet Inc.), major semiconductor chip vendors (such as Advanced Micro Devices, Inc., Intel Corporation, MediaTek Inc., NVIDIA Corporation, Qualcomm Inc. and Samsung Electronics Co., Ltd.), automotive industry incumbents, leading auto suppliers, IoT innovators, and more.

The exponential rise in smart devices in both consumer and enterprise markets has increased the demand for chips that provide more computational capability while optimizing energy efficiency. Thirty years ago, the PC was the only computer with which most people would interact at home, work, or school. Then, mobile phones became computers in our pockets and digital TVs became computers in our living rooms. Now, vehicles are effectively computers on wheels, and servers and networking equipment are the computers that connect all these devices and services together. Additionally, there are billions of tiny low-cost devices—from sensors to electric motor controllers—that are now functionally computers, as well. Each of these computers needs at least one CPU, and in many cases more than one. This trend has driven the dramatic growth of Arm-based chips over the past several years.

 

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Our creation of the Arm CPU architecture, the world’s most widely used CPU architecture, has resulted in the proliferation and evolution of computers as people know them today, advancing a paradigm of increasing compute performance coupled with industry-leading power efficiency. We enabled the mobile phone and smartphone revolution, and through our focus on energy efficiency and our history of continuous innovation, we have enabled new categories of “smart” consumer electronics. Today, we are redefining what is possible in industries such as cloud computing, automotive, and IoT. Energy efficiency is not only important for business, but it is also a critical component in achieving sustainability for our planet. This makes Arm CPU technology ideal for current and future computing applications as the demands for compute performance are growing exponentially while the need for low power remains critical.

Every CPU has an ISA, which defines the software instructions that can be executed by the CPU, essentially a common language for software developers to use. The ISA sets the foundation for a large library of compatible software which runs on those CPUs. As the Arm CPU is the most popular and pervasive CPU in history, the Arm ISA is also the most popular and pervasive ISA in history. This means that Arm-based chips have a global community of software developers familiar with how to program the CPU. Chip designers utilizing the Arm CPU can add desired functionality (Wi-Fi connectivity, image processing, video processing, etc.) to create an SoC to meet the needs of any end market.

Our primary product offerings are leading CPU products that address diverse performance, power, and cost requirements. Complementary products such as GPUs, System IP, and compute platforms are also available and enable high-performance, efficient, reliable, system-level creation for a wide range of increasingly sophisticated devices and applications. Our development tools and robust software ecosystem have further solidified our position as the world’s most widely adopted processor architecture and have created a virtuous cycle of adoption, which means that software developers write software for Arm-based devices because it offers the biggest market for their products, and chip designers choose Arm processors because they have the broadest support of software applications.

This combination of pervasiveness and ease of portability has resulted in our CPU designs having the world’s richest software ecosystem, built in partnership with the leading operating systems providers (including Google Android, Microsoft Windows and all major Linux distributions), software tools and game engine vendors (such as Electronic Arts Inc., Unity Software Inc. and Epic Games, Inc.), and application developers. We also support a flourishing ecosystem of third-party tool vendors for embedded software and a vibrant IoT ecosystem. Open-source software plays a vital role in the success of Arm-based chips, and we are committed to contributing to open-source software and tools to ensure our offerings are optimized for the latest technologies.

As the world moves increasingly towards AI- and ML-enabled computing, Arm will be central to this transition. Arm CPUs already run AI and ML workloads in billions of devices, including smartphones, cameras, digital TVs, cars and cloud data centers. The CPU is vital in all AI systems, whether it is handling the AI workload entirely or in combination with a co-processor, such as a GPU or an NPU. In the emerging area of large language models, generative AI and autonomous driving, there will be a heightened emphasis on the low power acceleration of these algorithms. In our latest ISA, CPUs, and GPUs, we have added new functionality and instructions to accelerate future AI and ML algorithms. We are working with leading companies such as Alphabet, Cruise LLC, Mercedes-Benz, Meta and NVIDIA to deploy Arm technology to run AI workloads.

Arm had 5,963 full-time employees across North America, Europe and Asia as of March 31, 2023. We are an engineering-first company, with approximately 80% of our global employees, as of March 31, 2023, focused on research, design, and technical innovation, and we have global operations and research and development (“R&D”) centers in the U.K., Europe, North America, India, and Asia-Pacific. Our headquarters are located in Cambridge, U.K.

For the fiscal year ended March 31, 2023, our total revenue was relatively flat at $2,679 million, as compared to $2,703 million in the fiscal year ended March 31, 2022. In the fiscal year ended March 31, 2023, as a percentage

 

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of total revenue our gross profit margin was 96% and operating income margin was 25%. In the fiscal year ended March 31, 2023, we generated net income from continuing operations of $524 million (Non-GAAP net income from continuing operations of $657 million), compared to $676 million (Non-GAAP net income from continuing operations of $663 million) in the fiscal year ended March 31, 2022. For the fiscal year ended March 31, 2022, our total revenue grew by 33%, to $2,703 million, from $2,027 million in the fiscal year ended March 31, 2021. In the fiscal year ended March 31, 2022, as a percentage of total revenue our gross profit margin was 95% and operating income margin was 23% compared to 93% and 12%, respectively, in the fiscal year ended March 31, 2021. In the fiscal year ended March 31, 2022, we generated net income from continuing operations of $676 million (Non-GAAP net income from continuing operations of $663 million), compared to $544 million (Non-GAAP net income from continuing operations of $207 million) in the fiscal year ended March 31, 2021.

Our Journey

History

Established in 1990, Arm began as a joint venture between Acorn Computers, Apple Computer, and VLSI Technology. We were publicly listed on the London Stock Exchange and the Nasdaq Stock Market from 1998 until 2016, when we were taken private by SoftBank Group, our controlling shareholder.

The original joint venture set out to develop a processor that was high performance, power efficient, easy to program, and readily scalable—a goal that continues to define Arm today. Our CPUs initially gained significant traction in mobile phones in the mid-1990s because our energy-efficient processors provided an appropriate level of performance while consuming little power, which was critical for these smaller form factor devices. Over time, mobile phones, and the chips they used, became more advanced and ultimately evolved into the smartphones that are prevalent today. The Arm CPU proved to be critical in enabling the smartphone revolution.

The mobile phone was one of the first consumer electronic devices to evolve into an intelligent, connected, digital device that needed a smart processor to run a growing library of software. With the help of Arm technology, many more devices such as televisions, watches, washing machines, cameras, factory equipment, and others are undergoing the same revolution.

Strategic Evolution

Since becoming a private company in 2016, we have made significant investments to further develop and market our products to build on our success in powering the world’s smartphones and other consumer electronic devices. We have focused in recent years on making Arm the ubiquitous provider of compute technology in all market segments by expanding into new markets, including cloud computing, networking, automotive, and IoT, most of which have strong secular tailwinds. Our investments have resulted in a diversified business with more durable growth.

Key elements of our evolution included:

 

   

Creating a Market-Led Business with Products Optimized for Specific Verticals. We have developed multiple product families, each optimized for markets such as smartphones, cloud computing, networking, automotive and IoT.

 

   

Building the New Armv9 Architecture. Leveraging the progress made by previous generations of our products, we embarked on the development of the Armv9 architecture, the ninth version of the Arm ISA. Today, the Armv9 architecture powers CPUs that offer improved security and performance across various applications. Consequently, the Armv9 architecture has the potential to drive our royalty opportunity per device even higher.

 

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Broadening our Compute Platforms. We have curated, integrated, and optimized our CPU and system-design components together into foundational compute platforms to deliver best-in-class performance and energy efficiency for our customers.

 

   

Expanding our Value Proposition for Customers. As building chips using the most advanced manufacturing processes became more complex and more costly, the opportunity to expand our product offerings to our customers increased. As a result, we have created more advanced and optimized CPU products that enable us to provide more value to our customers by giving their devices more functionality and more performance while using less power and at lower cost.

 

   

Introducing New Licensing Models with Increased Focus on Maximizing Royalty Opportunities. By licensing a portfolio of Arm products (rather than licensing a single CPU product or other technology design), we have made it easier and more compelling for customers to access and utilize more Arm products, further broadening our potential customer base and end market penetration. Our licensing models provide greater flexibility to our customers and maximize our opportunities to secure more design wins for our products, which results in greater opportunities to increase our recurring royalty revenue.

 

   

Diversifying and Deepening our Relationships with Market Leaders. We have established close partnerships with leading companies across all of our target markets, including, among others, Apple Inc., Guangdong OPPO Mobile Telecommunications Corp., Ltd., Samsung, vivo Mobile Communication Co., Ltd. and Xiaomi Communications Co., Ltd. in mobile computing, Amazon AWS and Alibaba Group Holding Limited in cloud compute, Cruise and Mercedes-Benz in advanced automotive, and Raspberry Pi Ltd, Schneider Electric SE and Siemens AG in industrial IoT. Further, we have entered into a new long-term agreement with Apple that extends beyond 2040, continuing our longstanding relationship of collaboration with Apple and Apple’s access to the Arm architecture.

Industry Background

Semiconductors are indispensable to everyday life. In today’s technology-driven world, semiconductors are the enablers of the devices and infrastructure that facilitate virtually everything people do, such as making a phone call, sending an email, storing files in the cloud, streaming videos, or traveling by car, train, or plane. Almost all of the products and services people use every day rely on semiconductors. Manufacturing, logistics, city infrastructure, and building management also increasingly build their processes and services around semiconductor-enabled devices. As consumers and enterprises continue to demand more from their devices, the pervasiveness of high-performance and energy-efficient semiconductors will continue to expand. We believe there are several key trends driving the growth and evolution of the semiconductor industry.

Proliferation of Smart, Connected Devices Supporting an Increasingly Digital World

The world is becoming increasingly digital with the proliferation of smart, connected devices, such as smartphones, wearables, PCs, tablets, and other electronic devices. Even everyday products like washing machines, thermostats, and utility meters are becoming more advanced. According to Deloitte’s 2022 Connectivity and Mobile Trends Survey, the average U.S. household had 22 connected devices in 2022, doubling from 11 devices in 2019. The market trend to make nearly all products smart and connected is not just limited to consumer electronics, but is also driving a wave of innovation across a broad range of end markets and use cases.

Increased Need for High-Performance, Power-Efficient Compute

The massive expansion of data, advanced software applications, and AI are driving the need for high-performance compute capabilities. To address increasingly complex workloads, a key approach has been to increase the speed of a CPU and expand the number of processor cores per chip. For instance, the number of cores per “high end” Arm-based chip has increased from 8 in 2016 to 192 in 2023. Solely running an existing chip faster may deliver more compute performance, but increasing performance results in higher energy

 

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costs, which may cause thermal limits to be exceeded. Collectively, these considerations result in the need for innovation in chip design to address market demands for an optimal balance of performance, efficiency, size, and cost across end markets.

Increasing Complexity and Cost of Designing Leading-Edge Solutions

The resources required to develop leading-edge products are significant and continue to increase exponentially as manufacturing process nodes shrink. According to the International Business Strategy, Inc. (“IBS”), IC design costs were approximately $249 million for a 7nm chip and approximately $725 million for a 2nm chip, representing approximately a three-times increase in design cost as compared to a 7nm chip. Design partners play an increasingly valuable role in the chip design process by providing specialized capabilities and expertise that enable semiconductor suppliers to focus on their core product differentiation, while keeping pace with market innovation. Design partners facilitate innovation and enhance customers’ competitive positioning by reducing the complexity, risk, and cost of a significant part of the development cycle. For example, to design a 2nm chip, IBS estimates that the software development, verification, and IP qualification is 71% of the overall cost. In addition, design partners, like Arm, that can demonstrate a deep understanding of their customers’ workloads are better positioned to integrate themselves into their customers’ workflows, further expanding their value proposition over time.

Growth of In-House Development and Custom Silicon Chips

Many OEMs today utilize “off-the-shelf,” or “merchant,” semiconductors when building their product offerings. However, this approach can introduce compromises. For example, an OEM may use a chip that includes features that are irrelevant for its use case, at the expense of performance and cost efficiency. Similarly, an OEM may need a chip that incorporates features not otherwise available from a merchant supplier. As a result, leading OEMs are increasingly looking to build custom chips in-house that deliver greater performance and greater efficiency at an equal or better price for a particular use case. The success of Arm-based products such as Amazon AWS’ Graviton, deployed across Amazon AWS data centers globally, have demonstrated the opportunity to create a sustainable competitive advantage through this approach. For example, Amazon AWS claims that Graviton delivers up to 40% better price performance over comparable x86-based systems. This trend of increasing use of in-house developed solutions has significantly expanded the opportunity for Arm.

Our Solution

We provide the most pervasive CPU architecture in the world. The key elements of our solution include:

 

   

Arm CPUs. The foundation of our product offerings is our market-leading CPU products. Our CPU products leverage our common scalable ISA and address the widest range of performance, power, and cost requirements.

 

   

Other Design Offerings. We have a portfolio of products that are deployed alongside our CPUs, including:

 

   

Graphics Processing Units. We offer a family of GPU products providing an optimal visual experience across a wide range of devices.

 

   

System IP. Complementary design components that enable designers to create high performance, power-efficient, reliable, and secure chips.

 

   

Compute Platform Products. Arm’s CPU, GPU, and System IP products integrate into a foundational compute platform optimized for a specific end market.

 

   

Development Tools and Software. Our tools and software support the development and deployment of our offerings.

We continue to expand the scope of our product offerings, investing in more holistic, end-market optimized designs, expanding beyond individual design IP to providing subsystem designs. Given the complexities of

 

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developing chips using the most advanced manufacturing processes, we are making significant investments to better support the increasing number of OEMs looking to develop their own customized chips.

In addition, we have cultivated a broad ecosystem of third-party hardware and software partners to support our customers. Our partners include leading semiconductor technology suppliers, including foundries (such as GlobalFoundries Inc., Intel’s Foundry Services business, Taiwan Semiconductor Manufacturing Company Limited and United Microelectronics Corporation) and EDA vendors (such as Cadence Design Systems, Inc., Synopsys, Inc. and Siemens). We also invest in our software ecosystem and work closely with firmware and operating system vendors (such as Amazon AWS, Canonical Ltd., Google LLC, Microsoft, Red Hat, Inc., VMware, Inc. and Wind River Systems, Inc.), game engine vendors (such as Unity and Epic Games), software tool providers (such as Green Hills Software LLC, IAR Systems AB and Lauterbach GmbH), and application software developers (such as Adobe Inc., EA, King.com Ltd. and Microsoft).

Our solution, combined with the breadth of our software ecosystem and the millions of chip design engineers and software developers that utilize it, has created a virtuous cycle of adoption, which means that software developers write software for Arm-based devices because it offers the biggest market for their products, and chip designers choose Arm processors because they have the broadest support of software applications.

We believe that the primary customer benefits of our solution include:

 

   

Ability to Optimize for Performance, Power and Area. Arm’s flexible and modular design IP enables customers to build chips optimized for the PPA requirements for a specific use case or end market. A battery-powered device such as a smartphone has a different PPA requirement versus a high-performance cloud server or an IoT sensor. By developing a wide range of CPU and related technologies, Arm can provide a CPU optimized for various use cases to reduce both energy consumption and area (with area being a key driver of the ultimate cost of a chip).

 

   

Alignment with the Semiconductor Industry’s Technology Roadmap. As leading-edge manufacturing processes continue to progress towards smaller transistors, developing chips is becoming harder and more costly, requiring more engineering time and effort. To further reduce our customers’ costs and to help de-risk their product development efforts, we combine our CPU products and SoC knowledge with our deep understanding of our ecosystem partners’ design tools and manufacturing processes to provide processor products that not only optimize for power and performance, but also accelerate time to market for our customers. In addition, through our deep customer and partner relationships, we have unique visibility into the future requirements of end markets as far as 10 years out, which informs the development of our products to ensure that our products meet or exceed future market needs.

 

   

Reduced Design Risk and Cost. Our solution allows customers to build optimized chips, while reducing their design execution risk and their internal development costs. We generally expect to license our products to multiple customers, enabling us to completely cover the cost of developing new Arm products by charging each licensee only a portion of the total development costs. We invest significant time, resources and effort in the design and verification of each processor and work closely with our partners to ensure a standard of excellence in the processor products we deliver to our customers.

 

   

Incorporation of AI and ML Acceleration in Every Processor We Design. Using an AI or ML algorithm is just another way of programming the software needed to run a chip, and we expect that AI and ML algorithms will complement the software used by most chips in the future, from high-end super computers to tiny, remote sensors. Arm processors run AI and ML workloads, and every smartphone currently in the market efficiently runs AI inference applications, such as voice recognition and applying filters to digital images. To ensure that software developers can efficiently run the AI and ML workloads, each generation of our processors is designed to accelerate key parts of algorithms that will be used in future applications.

 

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Our Market Opportunity

We define our total addressable market (“TAM”) to include all chips that can contain a processor and, therefore, our TAM includes the main controller chips in smartphones, PCs, digital TVs, servers, vehicles and networking equipment. Our TAM excludes chips that are unlikely to contain a processor, such as memory and analog chips.

For the calendar year ended December 31, 2022, we estimate that our TAM was approximately $202.5 billion and we forecast that our TAM will grow at a 6.8% compound annual growth rate (“CAGR”) to approximately $246.6 billion by the end of the calendar year ending December 31, 2025. We estimate that the aggregate value of chips containing Arm technology was approximately $98.9 billion in the calendar year ended December 31, 2022, representing an approximate 48.9% market share as compared to an approximate 42.3% market share as of December 31, 2020. We estimate that our royalty revenue as of December 31, 2022 represented approximately 1.7% of the industry TAM containing Arm-based chips. We expect that the cost and complexity of chip design will continue to increase, and that we will be able to contribute a greater proportion of the technology included in each chip, resulting in our royalties comprising a greater proportion of each chip’s total value. Our calculation of TAM is based on a combination of third-party sources, customer reports and our own internal assessments and judgment.

Mobile Applications Processor

The mobile applications processor is the primary chip in a smartphone, and runs the operating system and applications in addition to controlling many of the device functions, including gaming, music, video, and any other applications. While high compute performance is required for today’s applications, processors also must be highly energy efficient so that the smartphone’s battery will last all day without needing to be recharged. We expect the mobile applications processor market to grow from approximately $29.9 billion in the calendar year ended December 31, 2022 to approximately $36.0 billion in the calendar year ending December 31, 2025, representing a CAGR of 6.4% over that period. We have maintained market share in the mobile applications processor market of greater than 99% for many years, by virtue of all key mobile operating systems depending on Arm processors.

We expect the value of the market for mobile applications processors to continue to grow, particularly in light of several smartphone usage trends that are increasing the need for high-performance processing capabilities, including the shift to 5G, growth in mobile gaming, and emergence of AI and ML workloads.

Other Mobile Chips

Mobile phones contain many chips beyond the main applications processor, including the modem, Wi-Fi, Bluetooth and NFC connectivity chips, GPS chips, touchscreen controllers, power management chips, camera chips, audio chips and more, which we refer to collectively as the “other mobile chips market.” We expect the other mobile chips market to remain relatively flat at approximately $17.6 billion in the calendar year ended December 31, 2022 and approximately $17.5 billion in the calendar year ending December 31, 2025, representing a CAGR of (0.2)% over that period.

Consumer Electronics

CE includes products found in the home, such as digital TVs, tablets, laptops, extended reality (“XR”) headsets and wearables. The market share of Arm-based chips in consumer electronics is increasing as new product categories, such as smart speakers, XR headsets and laptops, adopt Arm products to achieve high performance without sacrificing efficiency. We expect the CE chip market to grow from approximately $46.9 billion in the calendar year ended December 31, 2022 to approximately $53.2 billion in the calendar year ending December 31, 2025, representing a CAGR of 4.3% over that period.

 

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Industrial IoT and Embedded

The industrial IoT and embedded semiconductor TAM includes chips used by a wide range of goods, including washing machines, thermostats, digital cameras, drones, sensors, surveillance cameras, manufacturing equipment, robotics, electric motor controllers and city infrastructure and building management equipment. We expect the industrial IoT and embedded chip market to grow from approximately $41.5 billion in the calendar year ended December 31, 2022 to $50.5 billion in the calendar year ending December 31, 2025, representing a CAGR of 6.7% over that period. Our market share in the IoT and embedded chip market has grown from 58.4% as of December 31, 2020 to 64.5% as of December 31, 2022.

Networking Equipment

Our networking equipment TAM includes chips deployed into wireless networking such as base-station equipment, enterprise Wi-Fi, and wired networking equipment such as routers and switches. The market is growing as more wired and wireless infrastructure is deployed, as much of the data consumed in the cloud is created at the edge and needs to be transmitted over networks to the data center for processing. We expect the networking equipment chip market to grow from approximately $17.2 billion in the calendar year ended December 31, 2022 to approximately $18.2 billion in the calendar year ending December 31, 2025, representing a CAGR of 1.8% over that period. Our market share in the networking equipment market has increased from 18.8% as of December 31, 2020 to 25.5% as of December 31, 2022. Arm is poised to accelerate market-share gains resulting from the deployment of 5G networks, as infrastructure scales from fewer large cell towers covering a wide area to a large number of small cells providing high-speed coverage, with a single architecture across both large and small cells to allow for flexible deployment of software and workloads.

Cloud Compute

The cloud compute market includes the main server chips, data processing units (DPUs), and smart network interface cards (SmartNICs) used by CSPs to run their operations. The increase in cloud computing has been driven by the rapid increase in data traffic generated by consumers and enterprises globally and by the migration of enterprise workloads to the cloud. We expect the cloud compute market to grow from approximately $17.9 billion in the calendar year ended December 31, 2022 to approximately $28.4 billion in the calendar year ending December 31, 2025, representing a CAGR of 16.6% over that period.

Arm-based chips have been gaining market share as CSPs have started to deploy Arm products in their own in-house designed chips used in their data centers, and as other CSPs start to deploy chips designed by Arm licensees. As a result, we expect our market share of cloud compute to grow significantly faster than the overall cloud compute market. Our market share in the cloud compute market has grown from 7.2% as of December 31, 2020 to 10.1% as of December 31, 2022.

Other Infrastructure

Other Infrastructure refers to the technological components and systems that support various aspects of computing, networking, and data processing and include chips deployed into high-performance computing (HPC) systems, enterprise servers, and edge networking equipment. We expect the other infrastructure market to grow from approximately $12.7 billion in the calendar year ended December 31, 2022 to approximately $13.7 billion in the calendar year ending December 31, 2025, representing a CAGR of 2.7% over that period. Our market share in the other infrastructure market has grown from 9.1% as of December 31, 2020 to 16.2% as of December 31, 2022.

Automotive

Our automotive TAM includes all chips with processors within vehicles. This includes chips used for IVI, ADAS, engine management, and body and chassis control. The automotive TAM is expected to increase as ADAS, electrification, IVI, and eventually autonomous driving, accelerate requirements for higher compute performance in newly manufactured vehicles. We expect the automotive chip market to grow from

 

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approximately $18.8 billion in the calendar year ended December 31, 2022 to approximately $29.1 billion in the calendar year ending December 31, 2025, representing a CAGR of 15.7% over that period. Today, our market share in the automotive market is highest in more technologically advanced functional areas such as IVI and ADAS. Our market share in the automotive market has grown from 33.0% as of December 31, 2020 to 40.8% as of December 31, 2022. As automotive electronics continue to transition from hardware-defined to software-defined architecture and compute, a trend that mirrors evolution of the smartphone, we believe we are well-positioned to outpace the growth of the overall automotive market.

Our Business Model and Customers

Our open and flexible business model provides access to high-quality CPU products for a wide range of potential customer types and end markets. We license our products to semiconductor companies, OEMs, and other organizations to design their chips. Our customers license our products for a fee, which gives them access to our designs and enables them to create Arm-based chips. Once a chip has been designed and manufactured with our products, we receive a per-unit royalty on substantially all chips shipped. The royalty has typically been based on a percentage of the ASP of the chip or a fixed fee per unit, and it typically increases as more Arm products are included in the chip. Our business model enables the widest range of customers to access Arm products through an agreement best suited to their particular business needs.

Competitive Strengths

We have enjoyed success for more than 30 years by providing market-leading technology, adapting our solution to changing market needs and building a software developer ecosystem unlike any other in history. Our competitive strengths include:

 

   

Technology Leadership with Proven Capabilities Across Markets. Arm’s CPU technology has been an industry leader for many years and continues to be the most widely deployed architecture globally. We estimate that Arm had an approximate 48.9% market share by value in the calendar year ended December 31, 2022, up from approximately 38.7% in the calendar year ended December 31, 2014. Our products are used in virtually all smartphones, a majority of tablets and digital TVs, and a significant proportion of all chips with embedded processors. We have an established presence in the cloud market, working with many of the largest hyperscalers, and in the automotive market, we work with leading OEMs and suppliers.

 

   

World’s Most Extensive Ecosystem of Third-Party Software and Hardware Partners. Arm has the world’s largest ecosystem of third-party software and hardware partners, including chip design and verification tools vendors, advanced fabrication, operating system and application vendors, software tools providers, and training and support services companies. As of March 31, 2023, more than 1,000 partner companies were invested in developing products that complement Arm’s technology and there were more than 8 million apps running on Arm-based devices built by more than 15 million developers designing software for Arm-based systems. We estimate that Arm’s engineers invested more than 10 million hours in creating the base software and tools for chips containing Armv8 processors, and that the developers have then spent another 1.5 billion hours creating their apps and software. We also estimate that Arm will be investing more than 30 million hours creating the base software and tools for Armv9 processors, which will enable the next generation of apps and software for Arm-based chips. The breadth of our ecosystem creates a virtuous cycle that benefits our customers and deeply integrates us into the design cycle because it is difficult to create a commercial product or service for a particular end market until all elements of the hardware and supporting software and tools ecosystem are available.

 

   

Deep Integration with Customers and Ecosystem Partners. We work closely with our customers and ecosystem partners to understand future industry trends and the evolution of end markets. We have

 

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worked in partnership with our top 10 customers by royalty revenue, for the fiscal year ended March 31, 2023, for an average of over 20 years. When a major semiconductor company licenses Arm products to deploy in their product roadmap, they are committing to use Arm products in multiple generations of their future chips. This requires us to not only work closely with our direct customers, but also with other elements of the ecosystem to understand and align product plans. Our collaborative relationships with partners in our extensive ecosystem, including companies that contribute design tools, manufacturing capabilities, software and other components, provide us with unique insights across the entire semiconductor industry, enabling us to invest in developing new products years, and sometimes up to a decade, before the products are deployed to end-users.

 

   

Efficient Model and Long-Term Visibility Enables Investment in Future Products. Our business model provides significant flexibility to fund long-term investments in future products. We have a capital-light and people-focused model, with most of our investments directed at hiring and retaining engineers undertaking advanced research and development. In the fiscal year ended March 31, 2023, we generated $2,573 million gross profit, allowing us to fund extensive investments in research and development for products that will be licensed in the future, with royalty fees to follow for years, and often decades, beyond that. We focus our investments on leading-edge products, and we leverage our underlying technology across multiple derivative products targeting different markets and extending into new applications over time. We are able to make significant upfront investments due to our alignment with customer roadmaps and the resulting visibility from long-term royalty streams. Some products continue to generate royalty revenue even after 25 years following their initial development.

 

   

We Satisfy our Customers’ Processor Design Needs in a Mutually Beneficial Way. We invest extensively in creating leading products that can be used across a wide range of end markets and customers. As we expect to license our products to multiple customers, we can typically cover the entire cost of developing new Arm products by charging each customer only a portion of the total development costs. This lowers the costs for each semiconductor designer to license Arm products, versus developing the technology in-house, and enables customers to focus resources on differentiation. In addition, by licensing Arm CPU technology, the licensee immediately gains access to the vast Arm ecosystem, which would be impossible to leverage if they developed their own CPU in house.

 

   

World-Class R&D Team with a Proven Track Record of Innovation. We are an engineering-first company, with 4,753 of our employees, or approximately 80% of our global employees, as of March 31, 2023, focused on research, design, and technical innovation. Our customers rely on us to deliver advanced technology, leveraging our extensive capabilities and scale across our CPU, GPU, systems, and platform products. Our culture encourages cross collaboration between teams and individuals, and we highly value collective effort. As a result of our unique reach and impact, we are able to attract and retain some of the brightest semiconductor engineers in the world. Our research and development team is prolific at developing new inventions, for which we seek patents to the greatest extent possible. As of March 31, 2023, we owned or co-owned a portfolio of approximately 6,800 issued patents and had approximately 2,700 patent applications pending worldwide, many of which are relevant to the key technologies used in many of the chips manufactured today.

Our Growth Strategies

We assess our investments through the lens of sustainable growth. Our research and development and new business initiatives are often tied to revenue streams five to ten years in the future, while our historical investments drive revenue and enable profitability and cash flow generation today. Key levers of our growth strategy are:

 

   

Gain or Maintain Share in Long-Term Growth Markets. We already have significant market share in some high-value markets, such as mobile applications processors, which enables us to invest in other

 

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growth opportunities. As of December 31, 2022, our market share in growth markets, including cloud computing, networking equipment, automotive and consumer electronics, was 10.1%, 25.5%, 40.8% and 32.3%, respectively. We believe that the increasing need for high-powered and energy-efficient computing, as well as our continued investments, will enable us to grow our market share in these segments.

 

   

Increase the Value of Arm Processors in Every Smart Device. As chip designs become more advanced and complex, we believe that our investments in additional functionality, higher performance, higher efficiency, and more specialized designs will allow us to deliver more value to our customers. These innovations enable us to license more advanced Arm products, and for our customers to implement Arm-based chips with multiple CPUs and more cores, all of which allow us to capture more value per chip.

 

   

Expand our System IP and SoC Offerings. To enable further improvements in performance and efficiency, we continue to develop a broader set of configurable systems IP offerings, including proven on-chip interconnect, security IP, memory controllers, and other design IP to be used with our processors, including the integration of multiple IP technologies into a subsystem and additional information to assist in fabrication. More recently, we have invested in a holistic, solution-focused approach to design, expanding beyond individual design IP elements to providing a more complete system. By delivering SoC solutions optimized for specific use cases, we can ensure that the entire system works together seamlessly to provide maximum performance and efficiency. At the same time, by designing an increasingly greater portion of the overall chip design, we are further reducing incremental development investment and risk borne by our customers while also enabling us to capture more value per device.

 

   

Invest in Next-Generation Technologies. We continuously evaluate emerging markets and technologies that may enable us to create more advanced products that bring more value to our customers and ecosystem. For example, we are leading the way in integrating AI and ML capabilities across all devices through our highly scalable architecture. All modern smartphones are AI and ML capable by virtue of their Arm processors, and we are increasingly working with companies in other markets, such as consumer electronics and automotive, to deploy AI-based solutions. For the networking, cloud and data center markets, we continue to add AI-specific features to our CPUs to enable market-leading performance.

 

   

Benefit from the Flexibility of Arm Products. Each Arm processor provides a certain compute capability within a power budget and, as such, can be used in multiple different devices that have similar compute requirements. An Arm customer who may have designed a processor for one application may, in the future, find additional applications that can utilize this technology. Consequently, Arm products may be used in new products for new end markets for many years or, in some cases, decades. For example, a processor originally licensed to go into a chip for a smartphone can also be used in a chip for a tablet, digital TV, or smart speaker. We expect this trend to continue with the growing proliferation of devices and use cases.

 

   

Expand Access to Arm Products Through our Flexible Business Model. We are focused on making Arm products as easy as possible to access and to integrate into a chip design. We continuously assess ways to expand our flexible engagement model to provide all companies with easy access to Arm products, including low- and no-cost offerings for startups. In recent years and with a growing portfolio of new products, we have started to move customers onto product portfolio licenses, where each customer will gain access to a broad portfolio of Arm products. Our business model makes licensing our products much easier by allowing our customers to quickly gain access to Arm products. We believe our business model will encourage customer experimentation and result in a broader range of Arm features being used. Our business model is also designed to provide better alignment between pricing and the value delivered by us across low- and high-end devices.

 

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Corporate Information

Arm Holdings plc was incorporated as a private limited company with the legal name Arm Holdings Limited under the laws of England and Wales on April 9, 2018, with the company number 11299879. Arm Holdings Limited re-registered as a public limited company under the laws of England and Wales on September 1, 2023 and changed its name to Arm Holdings plc.

Arm Limited was incorporated as a private limited company with the legal name Widelogic Limited under the laws of England and Wales on November 12, 1990 with the company number 02557590. On December 3, 1990, Widelogic Limited changed its company name to Advanced RISC Machines Limited, and, on May 21, 1998, it changed its company name to Arm Limited (at which time it was a wholly owned subsidiary of Arm Holdings plc with the company number 02548782). Our business was initially operated through Arm Holdings plc with the company number 02548782, which was previously an independent publicly traded corporation until its acquisition in September 2016 by SoftBank Group. On March 19, 2018, as a part of a reorganization, Arm Holdings plc with the company number 02548782 re-registered as a private limited company and was renamed SVF HoldCo (UK) Limited, which became a subsidiary of SoftBank Vision Fund L.P. (“SoftBank Vision Fund”), which retained an approximate 25% interest in our company with the remainder beneficially held by SoftBank Group. In August 2023, a subsidiary of SoftBank Group acquired substantially all of SoftBank Vision Fund’s interest in Arm Limited at a purchase price of approximately $16.1 billion, with the associated payments to be made in installments over a two-year period. The purchase price was established by reference to the terms of a prior contractual arrangement between the parties. Accordingly, prior to this offering, SoftBank Group beneficially owns substantially all of our outstanding shares. Our registered office is 110 Fulbourn Road, Cambridge, Cambridgeshire, CB1 9NJ, U.K., and the telephone number at that office is +44 (1223) 400 400.

The principal office for Arm Inc., our U.S. subsidiary, is located at 120 Rose Orchard Way, San Jose, CA 95134, and our telephone number at that office is +1 (408) 576-1500.

Our website address is www.arm.com. We have included our website address in this prospectus solely as an inactive textual reference. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus. Our agent for service of process in the United States is Arm, Inc.

Corporate Reorganization

Prior to the completion of this offering, we undertook a corporate reorganization pursuant to which Arm Holdings Limited acquired all the issued ordinary shares of Arm Limited. In connection with the corporate reorganization, the shareholders of Arm Limited exchanged each of the ordinary shares held by them in Arm Limited for newly issued ordinary shares of Arm Holdings Limited of the same class and in the same proportions as their previous shareholdings in Arm Limited. As a result, Arm Limited became a wholly-owned subsidiary of Arm Holdings Limited. On September 1, 2023, Arm Holdings Limited re-registered as a public limited company under the laws of England and Wales and changed its name from Arm Holdings Limited to Arm Holdings plc. The consolidated financial statements included in this prospectus do not show the effect of the corporate reorganization. See “Corporate Reorganization” for more information.

Risk Factors Summary

Our business is subject to a number of risks of which you should be aware before making an investment decision. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth in the section titled “Risk Factors” before deciding whether to invest in our ADSs. Among these important risks are the following:

Risks Relating to Our Business and Industry

 

   

Demand for our products and services primarily depends on trends in the semiconductor and electronics industries and the demand for the products of our customers and our customers’ customers.

 

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Demand for our products and services depends substantially on their acceptance by semiconductor and systems companies and their compatibility with, and the costs of, the design and manufacturing processes of our customers.

 

   

We face intense competition and could lose market share to our competitors.

 

   

If we are unable to attract new customers and sell additional products to our existing customers, our business, results of operations, financial condition and prospects may be materially and adversely affected.

 

   

We rely on third parties to market and sell chips incorporating our products and to enhance the value of our licensed products.

 

   

Our results of operations, particularly our licensing and royalty revenues, can vary significantly between periods and may be unpredictable.

 

   

Customers may decide to license our architecture and develop their own processors based on our architecture, rather than utilize our processor products pursuant to an implementation license.

 

   

A significant portion of our total revenue comes from a limited number of customers, which exposes us to greater risks than if our customer base were more diversified.

 

   

Consolidation in the semiconductor and electronics industries could have a material adverse effect on our business, results of operations, financial condition and prospects.

 

   

Our revenues predominantly come from a limited number of end markets.

 

   

If we fail to develop new products in response to, or in anticipation of, rapid technological changes in our industry or the industries we serve, our business may be materially and adversely affected.

 

   

Our concentration of revenue from the PRC market makes us particularly susceptible to economic and political risks affecting the PRC, which could be exacerbated by tensions between (on the one hand) the U.S. or the U.K. and (on the other hand) the PRC with respect to trade and national security.

 

   

Developing new products requires us to expend significant resources without assurances that we will generate revenue in the amounts we anticipate, on the expected timeline or at all.

 

   

We depend on our commercial relationship with Arm China to access the PRC market. If that commercial relationship no longer existed or deteriorates, our ability to compete in the PRC market could be materially and adversely affected.

 

   

Neither we nor SoftBank Group control the operations of Arm China, which operates independently of us.

 

   

Our business and future operating results may be materially and adversely affected by global economic conditions and other events outside of our control.

 

   

The semiconductor industry relies on a limited number of manufacturers whose operations tend to be concentrated in certain geographic regions to manufacture chips and other products, and developments that adversely affect such regions could have a material adverse effect on our business, results of operations, financial condition and prospects.

 

   

If our products do not conform to, or are not compatible with, existing or emerging industry standards, demand for our products may decrease.

 

   

Failure to obtain, maintain, protect, defend or enforce our IP rights could impair our ability to protect our proprietary products and our brand, and the costs of obtaining, maintaining, protecting, defending and enforcing such IP rights, particularly as a result of litigation, may adversely and materially affect our results of operations.

 

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We may be sued by third parties for alleged infringement, misappropriation or other violation of their IP rights or proprietary rights and our defense against these claims can be costly.

 

   

Errors, defects, bugs or security vulnerabilities in or associated with our products could expose us to liability and damage our brand and reputation, which could harm our competitive position and result in a loss of market share.

 

   

We have identified a material weakness in our internal control over financial reporting and may identify material weaknesses in the future or otherwise fail to maintain proper and effective internal controls. If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our ADSs.

Risks Relating to Government Regulation and Legal Compliance

 

   

Our international operations expose us to risks in international jurisdictions and we may be negatively impacted by export restrictions and trade barriers.

Risks Relating to Our Status as a Controlled Company and Foreign Private Issuer

 

   

We will be a “controlled company” within the meaning of the Nasdaq corporate governance rules and, as a result, be eligible to rely on exemptions from certain corporate governance requirements that provide protection to stockholders of companies that are not controlled companies.

 

   

As long as SoftBank Group controls us and/or is entitled to certain rights under the Shareholder Governance Agreement (as defined below), other holders of our ordinary shares and ADSs will have limited ability to influence matters requiring shareholder approval or the composition of our Board of Directors.

 

   

SoftBank Group’s interests may conflict with our own interests and those of holders of our ADSs.

 

   

While we are a foreign private issuer, we may opt out of certain Nasdaq corporate governance rules applicable to public companies organized in the U.S.

 

   

We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

Implications of Being a Foreign Private Issuer

Our status as a foreign private issuer exempts us from compliance with certain laws and rules of the SEC and certain regulations of Nasdaq. Consequently, we are not subject to all the disclosure requirements applicable to U.S. public companies. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our executive officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning us than there is for U.S. public companies.

In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD (Fair Disclosure), which is aimed at preventing issuers from making selective disclosures of material information.

 

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We may take advantage of these exemptions until such time as we no longer qualify as a foreign private issuer. In order to maintain our current status as a foreign private issuer, either a majority of our outstanding voting securities must be directly or indirectly held of record by non-residents of the U.S., or, if a majority of our outstanding voting securities are directly or indirectly held of record by U.S. residents, a majority of our executive officers or directors may not be U.S. citizens or residents, more than 50% of our assets cannot be located in the U.S. and our business must be administered principally outside the U.S.

We have taken advantage of certain of these reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold equity securities. In addition, as a foreign private issuer we intend to rely on and comply with certain home country governance requirements and exemptions thereunder rather than complying with Nasdaq corporate governance standards.

See “Risk Factors—Risks Relating to Our Status as a Controlled Company and Foreign Private Issuer” and “Management and Executive Remuneration—Foreign Private Issuer Exemption.”

Implications of Being a Controlled Company

SoftBank Group is expected to beneficially own approximately 90.6% of our outstanding ordinary shares following the completion of this offering (or approximately 89.9% if the underwriters exercise in full their option to purchase additional ADSs from the selling shareholder). As a result of SoftBank Group’s ownership, we will be a “controlled company” within the meaning of the corporate governance rules of Nasdaq. Under these rules, a listed company of which a majority of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements applicable to most Nasdaq-listed companies. As a controlled company, we have elected not to comply with certain corporate governance requirements applicable to most Nasdaq-listed companies. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of these corporate governance requirements.

See “Risk Factors—Risks Relating to Our Status as a Controlled Company and Foreign Private Issuer” and “Management and Executive Remuneration—Controlled Company Status.”

 

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THE OFFERING

 

ADSs offered by the selling shareholder

95,500,000 (or 102,500,000 if the underwriters exercise in full their option to purchase additional ADSs from the selling shareholder), with each ADS representing one ordinary share.

 

Ordinary shares to be outstanding upon completion of this offering

1,026,078,866 ordinary shares.

 

American depositary shares

Each ADS represents one ordinary share, nominal value £0.001 per ordinary share, of Arm Holdings plc. As a holder of ADSs, you will not be treated as one of our shareholders and you will not have shareholder rights. Rather, you will have the rights of an ADS holder or beneficial owner of ADSs (as applicable) as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time. To better understand the terms of our ADSs, see “Description of American Depositary Shares” elsewhere in this prospectus. We also encourage you to read the deposit agreement, the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part.

 

Depositary

Citibank, N.A.

 

Use of proceeds

We will not receive any of the proceeds from the sale of ADSs by the selling shareholder in this offering (including any proceeds from any sale of ADSs pursuant to the underwriters’ option to purchase additional ADSs). All net proceeds from the sale of ADSs in this offering will go to the selling shareholder.

 

Controlled company

SoftBank Group will beneficially own approximately 90.6% of our outstanding ordinary shares following the completion of this offering (or approximately 89.9% if the underwriters exercise in full their option to purchase additional ADSs from the selling shareholder). As a result of SoftBank Group’s ownership, after the completion of this offering, we will be a “controlled company” within the meaning of Nasdaq rules and, therefore, will qualify for exemptions from certain corporate governance requirements of Nasdaq. In the event that we elect to use the controlled company exemptions, holders of our ADSs will not have the same protections afforded to stockholders of companies that are subject to these corporate governance requirements.

 

  As long as SoftBank Group beneficially owns a majority of the voting power of our outstanding ordinary shares, SoftBank Group will generally be able to control the outcome of matters submitted to our shareholders for approval, including the election of directors, without the approval of our other shareholders. See “Risk Factors—Risks Relating to Our Status as a Controlled Company and Foreign Private Issuer—As long as SoftBank Group controls us and/or is entitled to certain rights under the Shareholder Governance Agreement, other holders of our ordinary shares and ADSs will have limited ability to influence matters requiring shareholder approval or the composition of our Board of Directors.”

 

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Dividend policy

We currently do not intend to pay dividends on our ordinary shares or ADSs. See the section titled “Dividend Policy” for more information.

 

Risk factors

See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ADSs.

 

Indications of interest

The Cornerstone Investors have, severally and not jointly, indicated an interest in purchasing up to an aggregate of $735 million of the ADSs offered in this offering at the initial public offering price and on the same terms and conditions as the other purchasers in this offering. Because these indications of interest are not binding agreements or commitments to purchase, any of the Cornerstone Investors may determine to purchase more, fewer, or no ADSs in this offering, or the underwriters may determine to sell more, fewer, or no ADSs to any of the Cornerstone Investors. The underwriters will receive the same underwriting discount on any ADSs purchased by the Cornerstone Investors as they will from the other ADSs sold to the public in this offering.

 

Proposed Nasdaq symbol

“ARM”

The number of ordinary shares, including ordinary shares represented by ADSs, that will be outstanding upon completion of this offering is 1,026,078,866, which is based on 1,025,234,000 ordinary shares outstanding as of September 1, 2023 following our corporate reorganization described under the section titled “Corporate Reorganization” plus an additional 844,866 ordinary shares issuable upon the completion of this offering, assuming an initial public offering price of $49.00 per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, in connection with the vesting of restricted share unit (“RSU”) awards and Executive Awards (as described under “Management and Executive Remuneration—Equity Incentive Plans—2022 RSU Plan”), and excludes:

 

   

up to 11,440,773 ordinary shares issuable upon the vesting of RSU awards issued under The Arm Limited All-Employee Plan 2019 (the “2019 AEP”), which will vest on the first trading day that is more than 180 days following the date on which our ADSs are admitted to trading on Nasdaq, assuming 100% achievement (maximum) of awards with market condition targets;

 

   

up to 27,541,913 ordinary shares issuable upon the vesting of the RSU awards that were issued under The Arm Limited RSU Award Plan (the “2022 RSU Plan”), which have not vested as of the date of this prospectus and will not vest upon the completion of this offering;

 

   

up to 2,907,542 ordinary shares issuable upon the vesting of the Executive Awards that were issued under the 2022 RSU Plan, which have not vested as of the date of this prospectus and will not vest upon the completion of this offering. This share amount assumes 200% achievement (maximum) of awards with performance metric targets, and conversion of monetary grant amounts assuming an initial public offering price of $49.00 per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus; and

 

   

up to 31,806 ordinary shares issuable upon the vesting of the RSU awards that were issued under The Arm Non-Executive Directors RSU Award Plan (the “NED Plan”), which have not vested as of the date of this prospectus.

Except as otherwise noted, the information in this prospectus assumes:

 

   

the completion of the transactions described in the section titled “Corporate Reorganization” prior to the completion of this offering;

 

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the adoption of the Articles prior to the completion of this offering;

 

   

an initial public offering price of $49.00 per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus; and

 

   

no exercise by the underwriters of their option to purchase up to an additional 7,000,000 ADSs from the selling shareholder in this offering.

 

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SUMMARY FINANCIAL DATA

The following summary consolidated financial data for the fiscal years ended March 31, 2023, 2022 and 2021 have been derived from our audited financial statements included elsewhere in this prospectus. The following summary financial data for the fiscal quarter ended June 30, 2023 have been derived from our unaudited consolidated interim condensed financial statements included elsewhere in this prospectus. Our summary unaudited consolidated balance sheet for the fiscal quarter ended June 30, 2022 has been derived from our accounting records and has been prepared on the same basis as the unaudited consolidated interim condensed financial statements for the fiscal quarter ended June 30, 2023 included elsewhere in this prospectus. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary for the fair statement of the condensed consolidated balance sheets, income statements and cash flows for these interim periods. Our historical results are not necessarily indicative of the results that may be expected in the future.

You should read the following summary financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

    For the Fiscal Year Ended
March 31,
    For the Fiscal Quarter Ended
June 30,
 

(in millions, except share and per
share amounts)

  2023     2022     2021     2023     2022  

Consolidated Income Statements Data:

         

Total revenue

  $ 2,679     $ 2,703     $ 2,027     $ 675     $ 692  

Gross profit

  $ 2,573     $ 2,572     $ 1,882     $ 644     $ 667  

Operating income

  $ 671     $ 633     $ 239     $ 111     $ 294  

Net income

  $ 524     $ 549     $ 388     $ 105     $ 225  

Net income per share attributable to ordinary shareholders

         

- Basic

  $ 0.51     $ 0.54     $ 0.38     $ 0.10     $ 0.22  

- Diluted

  $ 0.51     $ 0.54     $ 0.38     $ 0.10     $ 0.22  

Weighted average ordinary shares outstanding

         

- Basic

    1,025,234,000       1,025,234,000       1,025,234,000       1,025,234,000       1,025,234,000  

- Diluted

    1,027,505,008       1,025,234,000       1,025,234,000       1,028,618,467       1,025,902,205  

Pro forma net income per share attributable to ordinary shareholders (1)(2)

         

- Basic

  $ 0.16         $ 0.10    

- Diluted

  $ 0.16         $ 0.10    

Weighted-average shares used to compute pro forma net income per share attributable to ordinary shareholders (1)(2)

         

- Basic

    1,028,800,668           1,032,373,662    

- Diluted

    1,037,198,983           1,037,205,005    

Consolidated Balance Sheets Data:

         

Cash, cash equivalents and short-term investments

  $ 2,215     $ 1,635       $ 2,049     $ 1,354  

Total assets

  $ 6,866     $ 6,510       $ 6,700     $ 6,213  

Total shareholders’ equity

  $ 4,051     $ 3,548       $ 4,221     $ 3,748  

 

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(in millions)

   For the
Fiscal Year

Ended
March 31,
2023
     For the
Fiscal Quarter Ended

June 30, 2023
 
     Actual      Actual      Pro
Forma (1) (3)
 

Consolidated Balance Sheets Data:

        

Cash, cash equivalents and short-term investments

   $ 2,215      $ 2,049      $ 2,049  

Total assets

   $ 6,866      $ 6,700      $ 6,707  

Total liabilities

   $ 2,815      $ 2,479      $ 2,306  

Total shareholders’ equity

   $ 4,051      $ 4,221      $ 4,401  

 

(1)

The pro forma information reflects the corporate reorganization as described in the section titled “Corporate Reorganization,” which resulted in the issuance of ordinary shares of Arm Holdings plc to shareholders in the same class and number as their previous shareholding in Arm Limited. Therefore, the corporate reorganization did not result in a material change in outstanding shares or affect the pro forma earnings per share or balance sheet information.

(2)

The pro forma earnings per share presented above reflects the effect of (a) executive awards of approximately $55 million that will partially vest upon the occurrence of an initial public offering (including this offering) and are expected to be settled in ordinary shares of Arm Holdings plc, (b) the estimated fair value of the special cash award to our Chief Executive Officer that will vest upon completion of this offering, (c) the accelerated vesting and settlement of liability and equity classified awards granted to employees and executives of Arm Limited under the 2019 AEP, Executive IPO Plan 2019 (“2019 EIP”), and 2022 RSU Plan, which will be settled in ordinary shares of Arm Holdings plc, and (d) along with associated income tax effects. Estimates of the fair value of the share-based compensation charges, the associated employer payroll and employee withholding taxes, and the number of ordinary shares of Arm Holdings plc to be issued in connection with the settlement of these awards on a net settled basis assume an initial public offering price of $49.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus.

 

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The following table sets forth the computation of the Company’s unaudited pro forma, as adjusted, basic and diluted net profit per share (in millions, except per share data) for the year ended March 31, 2023 and fiscal quarter ended June 30, 2023:

 

     For the
Fiscal Year
Ended
March 31, 2023
     For the
Fiscal Quarter
Ended June 30,
2023
 

Net income

   $ 524      $ 105  

Estimated accelerated expense related to vesting and settlement of executive awards under the 2019 EIP and 2022 RSU Plan

     (36      —    

Estimated accelerated expense related to special cash award to our Chief Executive Officer

     (17      —    

Estimated accelerated and incremental expense related to the vesting of the 2019 AEP(a) non-executive awards, and estimated incremental expense for the payroll taxes related to the vested non-executive awards under the 2022 RSU Plan

     (322      (5

Estimated pro forma income tax benefit, net(b)

     12        —    
  

 

 

    

 

 

 

Pro forma net income

   $ 161      $ 100  
  

 

 

    

 

 

 

Weighted average ordinary shares outstanding—basic

     1,025,234,000        1,025,234,000  

Weighted average ordinary shares outstanding—diluted

     1,027,505,008        1,028,618,467  

Estimated ordinary shares to be issued in connection with the settlement of liability classified awards pursuant to the 2019 AEP, 2019 EIP, and 2022 RSU Plan for executive and non-executive awards, net of employee withholding taxes

     7,077,809        7,839,066  

Pro forma weighted average ordinary shares outstanding – basic

     1,028,800,668        1,032,373,662  

Pro forma weighted average ordinary shares outstanding – diluted

     1,037,198,983        1,037,205,005  

 

  (a)

The 2019 AEP awards will vest on the first trading day that is more than 180 days following the date on which our ADSs are admitted to trading on Nasdaq. Pro forma financial information for the 2019 AEP assumes 100% achievement (maximum) of awards with market condition targets.

  (b)

This pro forma adjustment reflects the income tax expense/benefit effects of pro forma share-based compensation adjustments based on applicable statutory tax rates for the jurisdictions associated with the respective pro forma adjustments. Because the tax rates used for these pro forma financial statements are an estimate, the blended rate will likely vary from the actual effective rate in subsequent financial reporting periods.

 

(3)

The pro forma balance sheet presented above reflects the effect of the acceleration of share-based compensation expense and the associated payroll taxes related to the liability classified awards for which we expect to deliver ordinary shares (or ADSs representing ordinary shares) of Arm Holdings plc in connection with the closing of this offering along with associated income tax effects. The pro forma adjustments reflect the elimination of $193 million of liabilities as of June 30, 2023, the effect on ordinary shares and additional paid in capital of $421 million based on their estimated fair value at closing of this offering offset by the estimated reduction of $241 million to retained earnings along with the recognition of liabilities of $20 million for estimated employee withholding taxes to be remitted to government agencies in connection with net settlement and issuance of ordinary shares and with $7 million income tax effects of pro forma adjustments to deferred tax assets and retained earnings.

 

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RISK FACTORS

Investing in our ADSs involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our ADSs. The occurrence of any of the events or developments described below could materially harm our business, financial condition, results of operations and prospects. In such an event, the market price of our ADSs could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may materially impair our business operations.

Risks Relating to Our Business and Industry

Demand for our products and services primarily depends on trends in the semiconductor and electronics industries and the demand for the products of our customers and our customers’ customers.

Demand for our products and services is largely dependent on the semiconductor and electronics industries, which are volatile, intensely competitive and generally characterized by declining ASPs over the life of a generation of chips. The effect of these price decreases is compounded by the fact that our royalty rates generally decrease as the volume of sales increases, subject to an agreed minimum royalty per chip. Additionally, demand for our products and services could decrease if growth in the semiconductor or electronics industries slows or declines.

The revenue we generate from licensing activities is also largely dependent on the rate at which systems companies develop and adopt new product generations, which, in turn, is affected by the level of demand for their ICs and other products. Decreasing demand from systems companies for chips based on our products would directly and adversely affect the amount of royalties we receive. As a result of our dependence on demand from systems companies, we are subject to several risks affecting these systems companies, any one of which may influence the success or failure of a particular systems company. These risks include, among others:

 

   

competition faced by the systems company in its particular industry;

 

   

the engineering and marketing capabilities of the systems company;

 

   

market acceptance of the systems company’s products;

 

   

adverse developments in the economic and political conditions of the region(s) in which the systems company operates, particularly to the extent that such developments create an unfavorable business environment;

 

   

supply constraints and inventory correction affecting the systems company;

 

   

technical challenges unrelated to our products faced by the systems company in developing its products; and

 

   

the financial and other resources of the systems company.

These risks and others which are outside of our control could adversely affect any number of systems companies upon which our success depends, which could, in turn, have a material adverse effect on our business, results of operations, financial condition and prospects.

Demand for our products and services depends substantially on their acceptance by semiconductor and systems companies and their compatibility with, and the costs of, the design and manufacturing processes of our customers.

Our success depends substantially on the acceptance of our products and services by semiconductor and systems companies, particularly those that develop and market chips for high-volume electronic devices in the

 

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automotive, embedded and IoT, enterprise electronics, and mobile and consumer electronics markets. There are competing microprocessor architectures in the market and there is no certainty that the market will continue to accept our products to the same or greater extent than it does today.

Demand from large, global systems companies, including OEMs, drive much of the development of silicon chips and computer systems. Accordingly, acceptance of our products by these companies as well as semiconductor and other companies for use in a variety of end-market applications is critical for our continued success.

The semiconductor and electronics industries have also become increasingly complex and subject to increasing design and manufacturing costs. Many of our customers utilize third-party vendors for EDA tools and also outsource the manufacture of their semiconductor designs to foundries. We work closely with major EDA vendors and foundries to ensure that our products are compatible with their design tools and manufacturing processes. However, if we fail to optimize our products for use with major EDA vendors’ tools and foundries’ manufacturing processes, or if our access to such tools and processes is hampered, then our products may become less desirable to our customers. Similarly, for customers that do not outsource design and manufacturing processes, if our products are unsuitable for the customers’ internal processes, then our products may not be acceptable to those customers.

Additionally, there are risks inherent in the manufacturing of next-generation process technologies, including production timing delays, lower-than-anticipated manufacturing yields, and product defects and errata. If foundries are unable to successfully or efficiently manufacture future generations of chips based on our products, demand for our products could be materially adversely affected along with our business, results of operations, financial condition and prospects.

We face intense competition and could lose market share to our competitors.

The market for our products is intensely competitive and characterized by rapid changes in design and manufacturing technologies, end-user requirements, industry standards, and frequent new product introductions and improvements. We anticipate continued challenges from current and new competitors, including established technologies such as the x86 architecture, as well as by free, open-source technologies, including the RISC-V architecture. Many of our customers are also major supporters of the RISC-V architecture and related technologies. If RISC-V-related technology continues to be developed and market support for RISC-V increases, our customers may choose to utilize this free, open-source architecture instead of our products. Additionally, many of our direct and indirect competitors, including some of our semiconductor customers, are major corporations with substantially greater technical, financial and marketing resources and name recognition than we have. Some of these competitors have a much larger application software base and a much larger installed customer base than we do, and there can be no assurance that we will have the financial resources, technical expertise, and marketing, distribution and support capabilities to compete successfully with them in the future.

In markets where we are established already and new markets we have entered or intend to enter, our primary competitors may have greater financial, technical, marketing, distribution, support or other resources and capabilities, greater brand recognition, lower labor and development costs, different regulatory restrictions or a larger customer base than we do. In these markets, we may have to invest substantial resources into developing an ecosystem of software and tools to create a competitive ecosystem that allows us to compete with alternative architectures such as x86 and RISC-V, which have business models that are different from ours and may be more attractive to some of our customers. Our competitors may devote greater resources to the development, promotion and sale of products and services, they may offer lower pricing and different customer engagement models, and their performance, features and product quality may be more desirable than those of our company. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources or strengthen their positions within these markets, or may be subject to more favorable regulatory regimes. For example, in August 2023, a group of our customers and

 

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other competitors announced a joint venture aimed at accelerating the adoption of RISC-V. Although the development of alternative architectures and technology is a time-intensive process, if our competitors establish cooperative relationships or consolidate with each other or third parties, such as the recently announced joint venture focused on RISC-V, they may have additional resources that would allow them to more quickly develop architectures and other technology that directly compete with our products. Such cooperative relationships or consolidations may also allow competitors to anticipate or respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. If we are unable to anticipate or react to these competitive challenges, our competitive position could weaken and we could experience a decline in revenue and profitability.

Some semiconductor companies have developed their own proprietary architecture for specific markets or applications. These companies may utilize their proprietary architecture to penetrate markets where we are currently the architecture of choice, or where our products may be utilized, making it more difficult for us to penetrate such markets in the future. Some semiconductor companies have proprietary architectures in applications, including, but not limited to, automotive, data center equipment, networking equipment, electronic storage, microcontrollers, smart sensors, servers and wireless communications. These companies may be significantly entrenched in their markets. If these companies are successful in displacing our products, or if we are unable to penetrate or grow our market share in these areas, licensing opportunities and potential royalties could be harmed, negatively affecting our business, results of operations, financial condition and prospects. Our development systems tools business also faces significant competition from both the open-source community and third-party tools and software suppliers.

While our customers likely would incur significant costs in switching to competitors’ architecture, our competitors (including new market entrants) may offer greater incentives to customers through rebates, marketing funds, similar programs and other commercial arrangements to induce them to use their architecture in lieu of our products. Additionally, our competitors with multiple products or services may bundle their architecture, products and services to offer a broader product portfolio (which may include products or services we do not offer), which may make it difficult for us to gain or maintain market share.

Our Physical IP business also faces significant competition from third parties, including the internal design groups of IC manufacturers that have expanded their internal design capabilities and portfolio of Physical IP components. Physical IP components developed internally by our customers may be designed specifically to utilize the unique qualities of their own manufacturing processes, and may benefit from capacity, informational, cost and technical advantages relative to our Physical IP components, and we may be unable to compete effectively with such internal design groups.

If we are unable to attract new customers and sell additional products to our existing customers, our business, results of operations, financial condition and prospects may be materially and adversely affected.

Adding new customers while maintaining our existing customers, selling additional products to our existing customers and increasing the price we charge to existing customers represent our principal opportunities to increase revenue (particularly licensing revenue). We generate a significant portion of our revenues from customers who incorporate our products into chips used in smartphones, consumer electronics and other embedded chips. If growth in these markets declines (including in the smartphone market, in which growth has declined in recent years), our business, financial condition, results of operations and cash flows could be negatively affected, and we would become more dependent on new growth areas to increase revenue and improve our financial condition. We are currently focused on growing our business in key areas such as infrastructure, automotive, IoT, AI and 5G. Numerous factors, however, may impede our ability to grow our business in these key areas, add new customers and sell additional products to our existing customers. Those factors include, among others:

 

   

failure to develop new products that are attractive to current and prospective customers;

 

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slow adoption of our new products in key areas such as infrastructure, automotive, IoT, AI and 5G;

 

   

failure to develop or expand relationships with channel partners;

 

   

failure to develop new distribution channels appropriate for such new technology areas;

 

   

failure to successfully provide quality technical support once deployed; and

 

   

failure to retain new customers and failure to ensure the effectiveness of our marketing programs.

In addition, if prospective customers do not perceive our products to be of sufficiently high value and quality or they do not believe the costs of our products relative to competing technology can be passed along to their customers, we may not be able to effectively attract new customers, which would materially and adversely affect our business, results of operations, financial condition and prospects.

We rely on third parties to market and sell chips incorporating our products and to enhance the value of our licensed products.

We rely on our customers to design, manufacture and sell chips incorporating our products in order to generate royalty revenue. A substantial portion of our revenue depends upon the commencement of new design projects by semiconductor companies and their ability to provide complete chips based on our products to meet the specific application needs of their customers. However, our customers are not contractually obligated to design, manufacture or sell chips using our products on an exclusive basis or at all. Some of our existing customers design, manufacture and sell chips based on competing technology, including their own, and other existing or potential customers may do so in the future. To the extent that our customers elect to license technology from competitors, our competitive position could be adversely affected and we could lose market share. Furthermore, under many of our arrangements with customers, there is generally no minimum purchase obligation or guaranteed revenue stream.

We are also subject to risks related to the competition faced by our customers in their particular industries, the engineering and marketing capabilities of our customers, the technical challenges unrelated to our products faced by our customers in developing their chips, and the financial and other resources of our customers. We cannot assure you that our customers and other partners will dedicate the resources necessary to promote and further develop chips incorporating our products, that they will manufacture chips containing our products in quantities sufficient to meet demand, that we will be successful in developing, expanding or maintaining our relationships with current or prospective customers or other partners, or that such customers will effectively and successfully promote and sell chips using our products. In addition, if their chips that incorporate our products are faulty, we may suffer reputational harm whether or not any fault results from our products. See “—Errors, defects, bugs or security vulnerabilities in or associated with our products could expose us to liability and damage our brand and reputation, which could harm our competitive position and result in a loss of market share.”

Our results of operations, particularly our licensing and royalty revenues, can vary significantly between periods and may be unpredictable.

We have experienced, and may in the future experience, significant fluctuations in our period-to-period results of operations. Our results may fluctuate and be unpredictable because of a variety of factors, including, among others:

 

   

the timing of entry into high-value agreements of which we historically have signed only a limited number each quarter;

 

   

the mixture of license fees, royalties, and fees for software and services;

 

   

our ability to correctly accrue royalty revenue;

 

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the financial terms and delivery and revenue recognition schedules of our agreements with customers;

 

   

the timing of license renewals and license extensions;

 

   

the demand for chips and end products that incorporate our products or expected future demand for such chips and end products;

 

   

seasonal effects on demand for end products that incorporate our products;

 

   

product and sales cycles;

 

   

the introduction of new technology by us, our customers or our competitors, or other actions taken by our competitors;

 

   

the timing of orders from, and shipments to, technology companies of chips based on our products from our semiconductor partners and customers;

 

   

the financial results of Arm China and its ability to make payments to us in a timely manner, or at all;

 

   

new litigation or developments in current litigation, including, but not limited to, a lawsuit with Qualcomm and Nuvia (each as defined below), as described under “—We are currently involved in pending litigation”;

 

   

the timing of new employees joining the Company;

 

   

the timing of bonuses and other remuneration to employees, including for retention purposes;

 

   

any strategic investments, acquisitions or divestitures that we might undertake, and the timing thereof;

 

   

supply chain constraints and inventory correction in or affecting the semiconductor industry;

 

   

cyclical fluctuations in the semiconductor market and the markets of our customers’ end customers;

 

   

sudden technological or other changes in the semiconductor industry, including consolidation among our customers;

 

   

changes in the global economy (such as inflation, rising interest rates or a recession), disruptions in the global supply chain (including shortages of critical semiconductor components and chips) or regulatory changes that impact the semiconductor industry;

 

   

changes in political, regulatory, legal or economic conditions or geopolitical turmoil (including PRC-Taiwan relations), including terrorism, war (including the war in Ukraine) or political or military coups, state-sponsored or politically motivated cyberattacks, or foreign and domestic civil disturbances or political instability; and

 

   

changes to accounting policies and accounting standards applicable to us, and changes to key accounting estimates and judgments applied by us.

Accurate prediction of the timing of inception of new licenses and renewals of existing licenses is difficult because the development of a business relationship with a potential customer may frequently span a year or more. The fiscal quarter in which a new or renewed license agreement will be entered into, if at all, is difficult to predict, as are the financial terms of any such agreement.

Our license and royalty revenues are also affected by market conditions in the industries in which our customers operate, particularly in the semiconductor industry, which is cyclical by nature and impacted by broad economic factors, such as worldwide gross domestic product and consumer spending. The semiconductor industry has experienced significant and sometimes sudden and prolonged downturns in the past, including in recent years as a result of supply chain constraints.

As a result of these factors and others, many of which are outside of our control, it may be difficult for us to provide accurate forecasts of our revenues and results of operations for future periods, and such factors and others could have a material adverse effect on our business, competitive position, results of operations, financial condition and prospects.

 

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Customers may decide to license our architecture and develop their own processors based on our architecture, rather than utilize our processor products pursuant to an implementation license.

Our customers may decide to license our ISA and develop their own processors based on our ISA, rather than utilize our predeveloped products through an implementation license, resulting in less fees paid to us. Customers may choose to develop their own processors if they believe they can do so more effectively than us or if supply and capacity constraints within the semiconductor industry further incentivize vertical integration in an effort to secure additional control over their supply chains. Some of these customers may have greater name recognition and substantially greater financial, management, marketing, service, support, technical, distribution and other resources than we do. If our customers, and particularly one or more key customers from whom we generate a significant portion of our total revenues, elect to develop their own processors based on our ISA, the market for our developed processor portfolio would decline, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

A significant portion of our total revenue comes from a limited number of customers, which exposes us to greater risks than if our customer base were more diversified.

A significant portion of our total revenue is generated from a limited number of key customers. In particular, our top five customers (including Arm China) collectively accounted for approximately 57% and 56% of our total revenue for the fiscal years ended March 31, 2023 and 2022, respectively, and our largest customer individually, Arm China, accounted for approximately 24% and 18% of our total revenue, respectively, during those fiscal years. As a result of this customer concentration, we are particularly susceptible to adverse developments affecting our key customers and their respective businesses, including industry downturns, decreased demand for their products, increased competition, changes in trade protection and other government policies, financial hardship and changes in their business model, purchasing behavior and strategic priorities, among other factors, many of which are beyond our control. In particular, developments in our key customers’ respective businesses that adversely affect their ability to satisfy their payment obligations to us or result in their determination not to continue or expand their use of our products would have a material adverse impact on our revenue and results of operations to a greater extent than if our customer base were more diversified. Our customer concentration also has afforded certain customers significant bargaining power, which has, in some cases, resulted in pricing or other contractual terms that are less favorable to us. For example, subject to certain limitations, certain of our contracts with key customers contain provisions allowing such customers to obtain licenses to our latest products as soon as they are made available to any other customer. If we were to lose one or more of our key customers or if our business with one or more key customers were to decrease significantly, whether as a result of external impacts on the business of those customers, or, for example, as a result of disputes with such customers with respect to pricing models, there are no assurances that we would be successful in identifying and contracting with one or more customers to replace any lost revenue, which would materially and adversely affect our business, results of operations, financial condition and prospects.

Consolidation in the semiconductor and electronics industries could have a material adverse effect on our business, results of operations, financial condition and prospects.

A number of business combinations, including mergers, asset acquisitions and strategic partnerships, have been consummated among our customers in the semiconductor and electronics industries, and more could occur in the future. Consolidation among our customers could lead to a loss of customers, increased customer bargaining power, or reduced customer spending on our products, each of which could have a material adverse effect on our business, results of operations, financial condition and prospects. For example, in the past, some of our larger customers who have negotiated lower pricing models have acquired customers with higher pricing models. In some cases, we have been, and in the future may be, required to renegotiate the pricing model with the acquired company or to honor the lower pricing model applicable for the acquiring customer while providing the same products prior to the acquisition by the larger company.

 

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Our revenues predominantly come from a limited number of end markets.

Royalties from smartphones and consumer electronics comprised greater than 50% of our royalty revenue for the fiscal year ended March 31, 2023. In these end markets, our substantial existing market share may limit opportunities for future growth. Additionally, demand in these markets may be adversely impacted if consumers reduce their purchases of smartphones and consumer electronics as a result of changes in consumer behavior. If these end markets do not expand, we may be unable to continue to grow our revenues significantly from these markets, if at all. Additionally, circumstances outside of our control, such as the invention of new technologies, could adversely affect the smartphone and consumer electronics markets as a whole, which would have a material adverse impact on our revenue, profitability, and ability to attract new customers.

Our products are extensible and have been licensed and used in various other target end markets. While these new target markets represent a meaningful opportunity for us, they may not grow or develop as quickly as we expect them to. Furthermore, it could take years to reach a market share similar to our position in smartphones and consumer electronics.

Other microprocessor architectures such as x86 and RISC-V may already exist across all of these markets, or may be developed for applications within these markets. For applications in markets such as computing, data centers, networking and servers, competing microprocessor architectures, such as x86, already have a large, well-established customer base and are supported by a broad base of related software and development tools. These markets represent a significant portion of our revenue growth opportunity, and they also introduce new sources of competition, including, in some cases, incumbent competitors with established technologies, ecosystems, and customer bases, lower prices or costs, and greater brand recognition. These new markets may not grow as projected or at all, and we may not realize an adequate return on our investments. Due to the interdependence of various components in the products in which our architecture and our competitors’ architectures are used, customers are unlikely to change to another product, once adopted, until the next generation of a technology. As a result, even if our products are superior to alternative offerings, it may be difficult for our products to displace alternative technologies as a result of high switching costs to change to our products, including the need for potential customers to make significant investments in additional training and development tools and to convert software for existing devices. Additionally, to the extent our competitors have done business with prospective customers for a long period of time and have established relationships, our competitors may have information regarding future trends and requirements of such prospective customers that may not be available to us. If any of these markets do not develop as we currently anticipate or we fail to establish ourselves in these new markets, we could suffer a material adverse effect on our competitive position and business prospects.

Fragmentation of the global semiconductor market could have a material adverse effect on our business, results of operations, financial condition and prospects.

We sell our products across the semiconductor industry globally and rely on various markets across the world to generate revenue. The global market for our products, both where we are already established and new markets we intend to enter, may be impacted by geopolitical factors. A shift towards geopolitical rivalry could lead to the fragmentation of the global semiconductor market, as certain countries want more end-to-end control over architecture, leading to increased architectural fragmentation and a reduced role for a global architecture. Countries may take political decisions to enforce the use of an alternative architecture, or locally generated implementations for certain use cases, to make their country more resilient in the case of trade barriers or for national security reasons. For us, this could lead to increased costs to support region specific products, reduced revenue as a result of lost investment in territories that no longer use our products and potential market loss and loss of future licensing opportunities, all of which could have a material adverse effect on our business, results of operations, financial condition and prospects.

 

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If we fail to develop new products in response to, or in anticipation of, rapid technological changes in our industry or the industries we serve, our business may be materially and adversely affected.

The market for our products is characterized by rapidly changing technology and end-user needs. For example, improvements are rapidly being made in AI, cloud computing, data centers, image sensors, ML and the metaverse, among other technologies. Furthermore, the once-rapid improvements in semiconductor transistor density, with consequent reductions in cost and power consumption, are decelerating, and further innovation will become incrementally more difficult and expensive to achieve. As a result of these rapid technological changes and others currently unknown, the future market for our products is difficult to predict. These risks are further exacerbated by the fact that our products often use a common architecture for multiple end markets and our new architecture products often are based on legacy products. Therefore, if our architecture were rendered uncompetitive, obsolete, or otherwise unmarketable it may impact multiple products and may cause us to expend significant resources and incur significant expenses to develop a new architecture.

Our business, reputation and relationships with our third-party partners could be adversely affected if we cannot develop technological improvements or adapt our products to technological changes on a timely basis. Whether we will be able to compete in the future will substantially depend on our ability to advance our products to meet these changing market and end-user needs and to anticipate successfully or respond to technological changes in hardware, software and architecture standards on a cost-effective and timely basis.

Developing new products requires us to expend significant resources without assurances that we will generate revenue in the amounts we anticipate, on the expected timeline or at all.

We will have to make significant expenditures to continue developing our semiconductor products and other products. The long development time of generally five or more years from the initial design of our semiconductor products until its incorporation into new end-user applications can place significant strain on our financial resources and personnel. Despite these investments, there can be no assurances that we will realize the financial benefits of our development efforts in the amounts we anticipate, on the expected timeline or at all. For instance, in the past we have experienced delays in the development of certain of our products, which then delayed product deployment and the associated revenues.

We may be unable to predict the timing or development of trends in our target markets with any accuracy. If we fail to accurately predict market requirements or market demand for our products in our target markets, our business will suffer. A market shift towards an industry standard that we do not currently support and for which we are not currently developing new products could significantly decrease the demand for our products. Despite these uncertainties, we devote substantial financial and other resources, including design, engineering, sales, marketing, and management efforts, to developing and marketing our products in anticipation of incorporation into new end-user applications. Additionally, our competitors may have a competitive advantage if their assessments relating to market adoption of new technologies prove to be more accurate than our assessments. Our failure to anticipate or timely develop new or enhanced products in response to changing market demand could result in the loss of customers and decreased revenue and have a material and adverse effect on our business, cash flows, results of operations and prospects.

As we develop and introduce new products, we face the risk that customers may not value or be willing to bear the cost of incorporating these newer products into their chips, including increases in royalty rates for such new products (as compared to existing products), particularly if they believe their customers are satisfied with the current products or unwilling to pay for improved products. Regardless of the improved features or superior performance of the newer products we develop, customers may be unwilling to adopt our new products for a variety of reasons, including design or pricing constraints. Moreover, the complexity and expense associated with our products generally requires a lengthy customer education, evaluation and approval process. Further, economic conditions, including economic downturns and rising rates of inflation, may adversely impact our ability to license products by making it difficult for our customers to plan future business activities, which could cause customers to limit spending or delay decision-making.

 

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We may not be successful in developing and licensing new products and may experience difficulties or delays that would prevent the successful development, introduction and marketing of new products, and any new products that we may introduce may not achieve market acceptance and generate royalties and profits in the amounts we anticipate, on the expected timeline or at all, which could materially and adversely affect our business, cash flows, results of operations and prospects. These risks are further exacerbated by our focus on developing and marketing high-value products, which naturally require more resources to develop.

Our concentration of revenue from the PRC market makes us particularly susceptible to economic and political risks affecting the PRC, which could be exacerbated by tensions between (on the one hand) the U.S. or the U.K. and (on the other hand) the PRC with respect to trade and national security.

For the fiscal years ended March 31, 2023, 2022 and 2021, revenues from the PRC accounted for approximately 25%, 18% and 20% of our total revenue, respectively, including both direct revenues and revenues derived from our relationship with Arm China. Our revenues in the PRC are derived from PRC semiconductor companies and OEMs, and from non-PRC semiconductor companies and OEMs that utilize our products in chips and end products they sell into the PRC, which, by country, has the largest number of smartphone users in the world. Our failure to maintain PRC-sourced revenues, access new and existing markets in the PRC or gain traction for new business areas in the PRC, or our loss of market share to competition in the PRC, could materially and adversely affect our results of operations and competitive position.

In the past decade, the PRC has been a significant source of semiconductor industry revenues and growth. However, the near-term growth prospects of the PRC semiconductor industry and related industries are unclear due to the uncertain effects of ongoing economic stress caused by policies to contain the COVID-19 pandemic, trade and national security policies, and the elevated levels of private and public indebtedness. For the fiscal year ended March 31, 2023, although our total revenues derived from the PRC increased as compared to the prior fiscal year, the growth in our royalty revenues derived from the PRC slowed for the same period primarily as a result of economic issues in the PRC and factors related to export control and national security matters. Furthermore, in light of these issues, we expect to continue to see declining royalty revenues, and we could see a decline in licensing revenues, derived from the PRC. A prolonged downturn in the PRC semiconductor industry or the PRC economy generally could materially and adversely affect our results of operations and competitive position.

Political actions, including trade and national security policies of the U.S. and PRC governments, such as tariffs, placing companies on restricted lists, export controls or new end-use controls, have in the past, currently do and could in the future limit or prevent us, directly or through our commercial relationship with Arm China, from transacting business with certain PRC customers or suppliers, limit, prevent or discourage certain PRC customers or suppliers from transacting business with us or Arm China, or make it more expensive to do so, which could adversely affect demand for our products. Given our revenue concentration in the PRC, if, due to actual, threatened or potential U.S., U.K. or PRC government actions or policies: Arm China is further limited in, or prohibited from, licensing our products to PRC semiconductor companies and OEMs; our non-PRC semiconductor companies and OEM customers were limited in, or prohibited from, selling devices into the PRC that incorporate our products; PRC semiconductor companies and OEMs develop and use their own technology or use our competitors’ technology in some or all of their devices; or our PRC customers delay or cease making payments of license fees owed, our business, revenues, results of operations, cash flows and financial condition could be materially harmed.

The U.S. and U.K. have trade and national security policies regarding exports to the PRC of technology with potential military uses that would require us to obtain export licenses for certain processors, which can be difficult to obtain. For example, the highest performance processor in our Neoverse series of processors meets or exceeds performance thresholds under U.S. and U.K. export control regimes and thereby triggers U.S. and U.K. export license requirements prior to export and delivery to customers in the PRC. Given that national security concerns are higher for HPC technologies destined for the PRC and government response timelines are not defined, it can be challenging and unpredictable to obtain such export licenses. Combined with customer need for

 

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certainty, we have been able to address customer demand by licensing other CPU cores that do not exceed the HPC performance export control thresholds but yet still present a compelling solution. Although our inability to sell such Neoverse processor into the PRC has not had a material impact on our business to date, future restrictions on sales of our products into the PRC could have a material adverse impact on our business.

On August 9, 2023, President Biden issued an executive order addressing investments by U.S. persons in companies located in the PRC that engage with certain categories of sensitive technology and products, including semiconductors and microelectronics, quantum information technologies and artificial intelligence. The executive order requires regulations that would implement limits on such investments and was accompanied by an advance notice of proposed rulemaking that outlines proposed regulations; however, the proposed regulations do not have immediate effect, are subject to public comment and a further rulemaking process and will not become effective until the rulemaking process is complete at some time in the future. While we believe it is possible that such regulations may impact our PRC customers, our suppliers, Arm China, or our business with respect to China, given the uncertainties with respect to the timing and ultimate requirements of these regulations, we are unable to assess the extent of any such impact.

Finally, government policies in the PRC that regulate the amount and timing of funds that may flow out of the country have impacted and may continue to impact the timing and/or ability to receive funds generated from PRC-related revenues, which may negatively affect our cash flows.

We depend on our commercial relationship with Arm China to access the PRC market. If that commercial relationship no longer existed or deteriorates, our ability to compete in the PRC market could be materially and adversely affected.

Substantially all of our PRC-related revenue is earned through the IPLA, pursuant to which, among other things, we granted Arm China certain exclusive rights to sublicense our IP to PRC customers. We expect that our licensing relationship with Arm China will continue to account for substantially all of our total revenues from the PRC and represent a significant portion of our revenues for the foreseeable future. It would be difficult for us to replace any lost PRC-sourced revenue in the event that our commercial relationship with Arm China were to terminate or deteriorate. Accordingly, we expect that Arm China will continue to provide our primary access to the PRC market for the foreseeable future. If we fail to maintain our commercial relationship with Arm China, our access to the PRC market could be materially diminished and our business, results of operations, financial condition and prospects for growth could be materially and adversely affected.

Neither we nor SoftBank Group control the operations of Arm China, which operates independently of us.

Despite our significant reliance on Arm China through our commercial relationship with them, both as a source of revenue and as a conduit to the important PRC market, Arm China operates independently of us. On March 28, 2022, we transferred our entire equity interest in Arm China to a subsidiary of SoftBank Group. As of the date of this prospectus, approximately 48% of the equity interest in Arm China is owned by Acetone Limited, which is controlled by SoftBank Group and in which we own a 10% non-voting interest, approximately 35% is indirectly owned by HOPU Investment Management Company, and approximately 17% is directly and indirectly owned by other Chinese parties. Our 10% non-voting interest in Acetone Limited represents an approximate 4.8% indirect ownership interest in Arm China.

Furthermore, we do not have any direct management rights with respect to Arm China, such as a right to representation on Arm China’s board of directors, although Mr. Haas continues to serve on the board as an appointee of the SoftBank Group affiliate holding Arm’s former equity interest in Arm China. Following the transfer of our interest in Arm China to a subsidiary of SoftBank Group, under the terms of the Arm China arrangement, the SoftBank Group affiliate holding Arm’s former equity interest in Arm China is entitled to appoint a minority of the directors of the board of Arm China, and SoftBank Group’s appointees are unable to unilaterally implement certain measures that require action by all of or a supermajority of the directors of Arm China.

 

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The fact that Arm China operates independently of us exposes us to significant risks. Arm China’s value to us as a customer is dependent on Arm China’s business results, which are, in turn, subject to substantial risks that are outside of our control. For example, Arm China may not commit the necessary resources to market and sell our products to PRC end-users of our semiconductor IP products. Arm China also may fail to comply with the laws and regulatory requirements applicable to its business, which could limit its ability to market or sell our products in the PRC. In addition, Arm China may fail to attract, train, retain and motivate highly skilled managerial and technical personnel necessary for its business. Arm China may also have difficulties accessing funding or enforcing contractual relationships. The realization of these or other risks related to Arm China’s business may have a material adverse effect on Arm China’s business, results of operations, financial condition and prospects and, by extension, our own. Since Arm China operates independently of us and we do not control Arm China, our ability to take measures to address the various risks facing Arm China is limited. If any of such risks related to Arm China’s business are realized, our revenue could materially decline and our results of operations could be materially adversely affected.

Under the IPLA with Arm China, Arm China’s payments due to us are determined based on the financial information that Arm China provides to us. Accordingly, similar to our other royalty customers, we are dependent on Arm China providing us with reliable and timely information. We perform various procedures to assess the reasonableness of Arm China’s data, and the IPLA includes rights for us to audit Arm China’s activities to ensure compliance with the IPLA. In the past, we have had issues obtaining timely and accurate information from Arm China. We believe the underlying problems causing our past inability to obtain such information have been resolved, but we can provide no assurances that our access to Arm China’s records will not be inhibited again in the future. If Arm China does not provide us with timely and accurate information, our revenue could materially decline and our results of operations could be materially adversely affected. We are also dependent on Arm China paying us the amounts that it owes us in a timely manner and in full. In the past, we have received late payments from Arm China and have had to expend company resources to obtain payments from Arm China. Although these historical issues did not have a material impact on our operations, any future failure to pay us the amounts we are owed under the IPLA could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Furthermore, Arm China has possession of or access to certain material IP and customer data pursuant to the IPLA and other commercial arrangements with us. Although Arm China is contractually obligated to protect this IP and data, we are limited in our ability to monitor or influence the manner in which Arm China protects our IP and data from theft, loss or misuse. Arm China operates its own separate information technology infrastructure. Aside from customary audit rights and protections under the IPLA, we are therefore unable to independently assure the adequacy of protections that Arm China implements with respect to its possession and/or access to our IP and data.

In addition, under the IPLA with Arm China, we are contractually obligated to indemnify both Arm China and its PRC customers that sublicense our IP in the event that either Arm China or such customers incur damages or costs in lawsuits, administrative proceedings or similar actions based upon a claim that our IP infringes the IP of a third party. The liability that we incur to Arm China or its PRC customers under such provisions could be significant and have a material adverse effect on our results of operations and liquidity.

Additionally, since April 2022, Allen Wu, the former chief executive officer of Arm China, and certain entities under his effective control, have initiated several lawsuits in the courts of the PRC seeking to challenge certain aspects of Arm China’s corporate governance and the actions of Arm China’s board of directors. To date, all cases that have been resolved at the trial court level have been resolved favorably to Arm China but are subject to appeal. In the event that certain of these cases were to be decided adversely to Arm China, it could result in further changes to Arm China’s corporate governance and management structure, which could reduce SoftBank Group’s ability to conduct effective oversight of Arm China and result in a material adverse effect on our business, results of operations, financial condition and prospects.

 

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We may face increasing competition with PRC companies that develop their own IP.

Due to various factors, including pressure, encouragement or incentives from, as well as the policies of, the PRC government (whose “Made in China 2025” campaign targets 70% semiconductor self-sufficiency by 2025), concerns over actual, threatened or potential U.S., U.K. or PRC government actions or policies, including trade or national security policies, or other reasons, PRC semiconductor companies and OEMs may increasingly develop their own technology and use such technology in their devices, or use our competitors’ technology in their devices. Specifically, the PRC government’s 14th Five-Year Plan and related initiatives have identified the development of globally competitive PRC companies in “core technologies” such as semiconductors as a key policy focus. As part of a government-wide effort to encourage investment and development of domestic semiconductor capabilities, the PRC government could encourage financing opportunities to our competitors in the PRC on favorable terms, or influence major PRC customers to favor adoption of IP of our competitors in the PRC over our own IP.

With respect to Arm China, although the terms of the IPLA with Arm China prohibit Arm China from developing microprocessor cores and only allow Arm China to develop derivative products using Arm IP with our consent, Arm China may independently develop competitive products other than microprocessor cores and could divert customer interest from our products to increase its market share to our detriment. The realization of any such risks could materially harm our business, results of operations, cash flows and financial condition.

Our business and future operating results may be materially and adversely affected by global economic conditions and other events outside of our control.

In early 2023, the World Bank warned that the global economy is close to a recession with global growth sharply declining due to, among other things, high inflation, deteriorating financial conditions, and rising geopolitical tensions. We are subject to risks arising from adverse changes in global economic conditions. In particular, due to economic uncertainties in many of our key markets, our customers and their customers may delay, suspend or reduce technology purchases and investments and/or delay their payments to us.

Economic conditions could continue to deteriorate in the future, and, in particular, the semiconductor and electronics industries could fail to grow, including as a result of the effects of, among other things, rising inflation and interest rates, a sustained global semiconductor shortage, supply chain disruptions, the COVID-19 pandemic and any disruption of international trade relationships such as tariffs, export licenses or other government trade restrictions. In addition, adverse economic conditions affect demand for devices that our products help create, such as smartphones, automobiles and servers. Longer-term reduced demand for these or other devices could result in reduced demand for our products and significant decreases in our licensing fees and royalties over time. In addition, if our customers or distributors build elevated inventory levels, we could experience a decrease in short-term and/or long-term demand for our products. If any of these events or disruptions were to occur, the demand for our products could be materially adversely affected along with our business, results of operations, financial condition and prospects.

Our business and operating results are also vulnerable to interruption by other events outside of our control, such as earthquakes, fire, extreme weather events, power loss, telecommunications failures, political instability, geopolitical turmoil, such as the war in Ukraine and any sanctions, export controls or restrictions on doing business with Russia and Belarus, as well as any resulting disruption, instability or volatility in the global markets and industries resulting from such conflict, pandemics, military conflict and uncertainties arising out of terrorist attacks, including a global economic slowdown, the economic consequences of a resurgence and escalation of the trade war between the U.S. and the PRC, the potential for conflict in Taiwan and the associated disruptions to, or effects on, the semiconductor industry, uncertainties resulting from the U.K.’s withdrawal from the European Union, commonly referred to as Brexit, military action or terrorist activities and associated political instability. Economic or political instability may undermine consumer confidence and/or cause current or

potential customers, including the end customers of our customers or potential customers, to reduce or delay their

 

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technology purchases and investments. Such events could also materially adversely affect our ability to operate and supply our products to our customers.

Brexit has caused, and may continue to cause, uncertainty with respect to the future of the U.K.’s economic and political relationship with the European Union, which could increase taxes and costs of business and cause heightened volatility in currency exchange rates and interest rates. Continued uncertainty and events related to Brexit could have a negative impact on consumer confidence and wages, leading to a decrease in the gross domestic product of the U.K. Brexit could also adversely affect the political, regulatory, economic or market conditions in the U.K., the European Union and worldwide, and could contribute to instability in political institutions, regulatory agencies and financial markets.

We regularly maintain cash balances at third-party financial institutions in excess of government-insured limits. The U.S. Federal Deposit Insurance Corporation took control and was appointed receiver of Silicon Valley Bank, New York Signature Bank and First Republic Bank on March 10, 2023, March 12, 2023 and May 1, 2023, respectively. We do not have any direct exposure to Silicon Valley Bank, New York Signature Bank or First Republic Bank. However, if other banks and financial institutions, including financial institutions at which we maintain deposits, enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets or otherwise, our ability and our customers’ ability to access cash, cash equivalents and investments may be threatened.

These factors could cause customers to delay, decrease or cancel the licensing of our products and could expose us to increased credit risk on customer obligations owed to us, each of which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Our operating results and revenue could be adversely affected by customer payment delays, customer bankruptcies and defaults or modifications of contractual commitments.

Certain of our customers have and may continue to, and others in the future may, face challenging financial or operating conditions, including due to macroeconomic conditions or catastrophic events or other factors, and delay or default on their payment commitments to us, request to modify contract terms, or modify or cancel plans to license our products. Our customers’ inability to fulfill payment commitments, in turn, could adversely affect our revenue, operating expenses and cash flow. Additionally, certain of our customers have in the past sought, and customers may in the future seek, to renegotiate pre-existing contractual commitments. Payment defaults by our customers or significant reductions in existing contractual commitments could have a material adverse effect on our financial condition and results of operations.

Sustained inflation could have a material adverse effect on our business, results of operations, financial condition and prospects.

Inflation rates in the markets in which we operate have increased and may continue to rise. Sustained or increasing inflation could increase our operating expenses, including labor costs and research and development expenditures, or result in employee attrition to the extent our remuneration does not keep pace with inflation, particularly if our competitors’ remuneration does. Further, inflationary pressures may increase costs for our customers and reduce demand for our products or our customers’ products due to increased prices. In addition, some of our long-term licenses include an annual increase in license fees. However, these annual increases may fall below the then-current rate of inflation, which could make maintaining these licenses less profitable than we had anticipated when we originally signed the license. To the extent inflation results in rising interest rates and has other adverse effects on the market, it may further adversely affect our business, results of operations, financial condition and prospects.

 

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An epidemic, pandemic or other health crisis could materially and adversely affect our business, results of operations, financial condition and prospects

Public health crises, including the COVID-19 pandemic and the emergence and spread of COVID-19 variants, have previously resulted in significant economic uncertainty, significant volatility in business and consumer confidence and global consumer demand, and a global economic slowdown. Government policies and other preventive and precautionary measures that governments and businesses have implemented in the past to limit the spread of an epidemic, pandemic or other health crisis, including, but not limited to, travel bans and restrictions, quarantines, shelter-in-place and social distancing orders, declarations of states of emergency and shutdowns, have exacerbated these issues.

Although restrictions may from time to time ease in certain jurisdictions, there is continued uncertainty regarding the duration, scope and severity of the COVID-19 pandemic, particularly with the emergence of new variants of COVID-19 and periodic spikes in COVID-19 cases in various geographic regions. In particular, the recent resurgence of the pandemic in the PRC, one of our most significant markets, after the government abandoned its zero-tolerance policy for COVID-19, may cause the reinstatement of restrictions across various jurisdictions and could adversely affect many industries in the PRC and globally. The pandemic in the PRC has resulted from time to time in widespread lockdowns in various areas of the country and has had, and may continue to have, a significant adverse effect on the PRC economy and, in turn, demand for our products.

The COVID-19 pandemic has also contributed to volatility in the financial markets and may increase the possibility of an extended global economic downturn and extended periods of high inflation, which could continue to affect demand for our products, demand for end products that incorporate our products and our ability to collect payments from our customers.

We are unable to accurately predict the impact that COVID-19 will continue to have on our business, results of operations, financial condition and prospects due to uncertainties, including the existence, severity and duration of future outbreaks and additional actions that may be taken by businesses and governmental authorities. Nevertheless, to the extent the COVID-19 pandemic or an unrelated epidemic, pandemic or other health crisis adversely affects our business, it may also have the effect of heightening many of the other risks described in these risk factors relating to our business and industry, such as those relating to demand for end products incorporating our products. The cumulative effects of these developments could have a material adverse effect on our business, results of operations, financial condition and prospects.

Failure to adequately fund our research and development efforts may materially impair our ability to compete effectively.

To remain competitive, we must continue to develop new products, applications and enhancements to our existing products and services, particularly as next-generation technology is adopted by market participants. Allocating and maintaining adequate research and development resources, such as the appropriate personnel and development technology, to meet the evolving demands of the market is essential to our continued success, but our allocations may be inadequate or we may pursue research and development initiatives based on assumptions about future demand that prove to be incorrect. Our competitors may expend considerably greater resources to support their respective research and development programs than we do, which may give our competitors a competitive advantage.

Our ability to fund research and development expenditures depends on generating sufficient revenue and cash flow from operations and the availability of external financing, if necessary. Our research and development expenditures, together with other ongoing operating expenses, is a substantial drain on cash flow and may decrease cash balances, which may limit our ability to pursue other potentially attractive initiatives. On the other hand, if we allocate our resources to such other potentially attractive initiatives or pay dividends to our shareholders, our research and development efforts may be harmed or we may need to seek external financing in

 

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order to fund our efforts. If new competitors, technological advances by existing competitors, other competitive factors or market changes require us to invest significantly greater resources than anticipated in research and development efforts, total operating expenses would increase. If we are required to invest significantly greater resources than anticipated in research and development efforts without an associated increase in revenue, our operating results could decline.

Additionally, our processors often run software created by independent software vendors or through open-source communities. Each end market has its own ecosystem of software and tools providers, including from open-source communities. These ecosystems need to be supported by our engineers and resources, and by our customers, including, from time to time, through direct monetary investment. In some circumstances, we may also need to subsidize or fund our customers’ research and development efforts. Insufficient investment may result in the ecosystems and/or customers providing better support for end products not based on our products leading to systems companies not choosing chips based on our products, which would result in a reduction in our revenues.

The semiconductor industry relies on a limited number of manufacturers whose operations tend to be concentrated in certain geographic regions to manufacture chips and other products, and developments that adversely affect such regions could have a material adverse effect on our business, results of operations, financial condition and prospects.

The semiconductor industry relies on a limited number of companies to manufacture chips and related products. The chip manufacturing operations of these companies are concentrated in certain geographic regions, including Taiwan and other parts of East Asia, which makes us susceptible to adverse developments in these regions’ economic and political conditions, particularly to the extent that such developments create an unfavorable business environment that significantly affects our and our customers’ operations. These manufacturers or the geographic regions in which they operate may be impacted by events outside of our or their control, including, among other things, company-specific operational issues, trade conflicts and military action or terrorist activities and associated political instability, any of which could have a material adverse effect on our business, results of operations, financial condition and prospects. Although the governments of certain countries, including the U.S., have taken actions to make their countries more attractive for chip manufacturing operations, there can be no assurances that the current geographic concentration of chip manufacturing will be meaningfully changed in the near term or at all.

Any escalation in geopolitical tensions in Asia, particularly between the PRC and Taiwan, could significantly disrupt semiconductor chip manufacturing and interrupt the global semiconductor chip supply chain. A significant portion of the world’s semiconductor manufacturing is in Taiwan, and increased geopolitical tensions there could exacerbate supply chain disruptions. In addition, the war in Ukraine could lead to market disruptions and exacerbate current supply chain constraints, including with respect to certain materials and metals, which are essential in semiconductor manufacturing.

New technologies, such as AI and ML, may use algorithms that are not suitable for a general purpose CPU, such as our processors, and the failure to successfully implement new technologies in our processors could have a material adverse effect on our business, competitive position, results of operations, financial condition and prospects.

New technologies, such as AI and ML, may use algorithms that are not suitable for a general purpose CPU, such as our processors. Consequently, our processors may become less important in a chip based on our products, thus eroding its value to the customer and resulting in lower revenue for us. If we are unable to develop and commercialize processors that are compatible with new technologies or competitors are successful in developing compatible technologies more quickly or efficiently than we can, our business, competitive position, results of operations, financial condition and prospects may be materially and adversely affected. In addition, the introduction of new technologies, such as AI and ML, into our processors may increase IP, cybersecurity,

 

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operational, data protection and technological risks and result in new or enhanced governmental or regulatory scrutiny, litigation, ethical concerns, or other complications that could materially and adversely affect our business. As a result of the complexity and rapid development of new technologies, it is not possible to predict all of the legal, operational or technological risks related to use of such technologies. Furthermore, new technologies, such as AI and ML, are the subject of evolving review by various governmental and regulatory bodies and agencies, and changes in laws, rules, directives and regulations governing the use of such technologies may adversely affect the ability of our business to develop and use such technologies.

We rely on our management team and will need additional personnel to grow our business, and the loss of one or more key employees or our inability to attract and retain qualified personnel could harm our business.

Our future success is substantially dependent on our ability to attract, integrate, retain and motivate our management team and other key personnel and we are particularly dependent on our senior management team, including Mr. Haas, our Chief Executive Officer, Mr. Child, our Chief Financial Officer, Mr. Collins, our Chief Legal Officer, Mr. Grisenthwaite, our Chief Architect, and other key employees. Competition for highly skilled personnel, and particularly engineers, can be intense. Other companies may be successful in recruiting and hiring members of our management team or other key employees, and it may be difficult for us to find suitable replacements on a timely basis, on competitive terms or at all. We experience voluntary attrition on an ongoing basis, and we reduced overall headcount as part of a restructuring that was completed in June 2022 to address duplicative work functions and deprioritize certain initiatives within the Company. Circumstances may require a further reduction in the overall size of our organization, which may present challenges in managing and growing our business. If we lose the services of any of our senior management personnel, other key personnel or a significant number of our engineers or sales and marketing personnel, our development efforts or business relationships could be disrupted, which could have a material adverse effect on our business, results of operations, financial condition and prospects. Our future success significantly depends on our ability to identify, attract, motivate and retain qualified engineers with the requisite educational background and industry experience. Competition for such qualified engineers is intense and the cost of attracting and retaining qualified employees may increase without a corresponding increase in the prices we charge our customers, which could materially and adversely affect our profitability. In certain geographic regions, there is also intense competition for sales and marketing personnel, which may adversely affect our ability to expand into new markets. Particularly, changes to the U.K.’s border and immigration policy could occur as a result of Brexit, potentially affecting our ability to recruit and retain employees from outside the U.K. If we are unsuccessful in attracting and retaining qualified personnel to fulfill our current or future needs, our business, results of operations, financial condition and prospects could be materially and adversely affected.

Competitive pressures or market opportunities may necessitate reductions in our pricing or change our business terms or business model, which could materially and adversely affect our business, results of operations, financial condition and prospects.

In order to remain competitive in the highly competitive markets in which we do business, we may need to reduce the prices of our products or services or otherwise change the structure and terms of our customer relationships or our business model. If our competitors offer significant discounts on certain products in an effort to recapture or gain market share or to sell other software or hardware products, we may need to lower our prices or offer other favorable terms to compete successfully. Any such changes would likely reduce our profit margins and could have a material adverse effect on our business, results of operations, financial condition and prospects. Any substantial changes to our other commercial arrangements with our customers or our business model could cause revenues to decline or be delayed as our sales force implements and our customers adjust to the commercial arrangements or business model. Changes to our business model could also necessitate changes in our product mix, which could cause revenues or profitability to decline, particularly if such changes in our product mix result in an increased reliance on lower margin offerings. If we cannot offset price reductions with a corresponding increase in sales volume or by reducing our costs, then the reduced revenues resulting from lower prices could have a material adverse effect on our business, results of operations, financial condition and prospects.

 

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Additionally, in the future, in response to market opportunities and pressures, we are likely to offer new products or services that may directly compete with the products and services of some of our customers or partners. This may create real or perceived competitive conflicts with companies that are important to our business, and as a result of such competition, such customers or partners may terminate or materially reduce their relationship with us.

If development tools, systems software, EDA tools and operating systems that are compatible with our products cease to be available or are inadequate to satisfy customer needs, then our business, results of operations, financial condition and prospects may be materially and adversely affected.

We believe that it is crucial for the market acceptance of our products to have available development tools, systems software, EDA software and operating systems that are compatible with our products. Although we currently work with other third-party partners to offer such tools and software compatible with our products, we cannot assure you that such tools and software are or will continue to be sufficient to support customers’ needs, that our existing partners will continue to offer such tools, software and operating systems compatible with our products, or that we will continue to attract additional tools, software and operating systems partners. If development tools, systems software, EDA tools and operating systems that are compatible with our products cease to be available or are inadequate to satisfy customer needs, then our business, results of operations, financial condition and prospects may be materially and adversely affected.

Participation in standards-setting organizations may subject us to IP licensing requirements or limitations that could adversely affect our business and prospects.

Our participation in standards-setting organizations or with other industry initiatives may require us to license our patents or products to companies that adopt industry-standard specifications. Depending on the rules of the organization, government regulations, or court decisions, we may be required to grant to all other participants licenses to our patents or products that are essential to the practice of those standards for little or no cost, or otherwise on RAND terms, which could limit our control over the use of these patents and products. If we fail to limit to whom we license our patents or products, or fail to limit the terms of any such licenses, we may be required to license our patents or other IP to others in the future, which could limit the effectiveness of our patents against competitors. In these situations, the royalty rates we charge could be limited for these products, and we may be unable to limit to whom we license such products or to restrict many terms of the license. As a result, we may be unable to enforce certain patents against others, our costs of enforcing our licenses or protecting our patents may increase, and the value of our IP rights may be impaired. We may in the future be subject to claims that our licensing of industry standard technologies may not conform to the requirements of the standards-setting organization. Allegations such as these could be asserted in private actions seeking monetary damages and injunctive relief, or in regulatory actions. Claimants in such cases could seek to restrict or change our licensing practices or our ability to license our products. Any of the foregoing could have a material adverse effect on our business, results of operations, financial condition and prospects.

If our products do not conform to, or are not compatible with, existing or emerging industry standards, demand for our products may decrease.

We design certain of our products to conform to industry standards. Some industry standards may not be widely adopted or implemented uniformly, and competing standards may emerge that may be preferred by our customers or by our third-party suppliers. In addition, existing standards may be superseded by new innovations or standards. Because our products often use a common architecture and our new architecture products often are based on legacy products, obsolescence of components or features of our products may have a more significant effect on our results of operations, financial condition and prospects than if our products were less interrelated. See “—Developing new products requires us to expend significant resources without assurances that we will generate revenue in the amounts we anticipate, on the expected timeline or at all.”

 

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We use certain software governed by open-source licenses and we contribute to certain open-source projects, which under certain circumstances could materially adversely affect our business, results of operations, financial condition and prospects.

Certain of our software, as well as that of our customers, third-party partners and vendors, may be derived from “open-source” software that is generally made available to the public by its authors or other third parties. Open-source software is made available under licenses that impose certain obligations on us in the event we were to distribute derivative works of the open-source software. These obligations may require us to make source code for the derivative works available to the public and/or license such derivative works under a particular type of license, rather than the forms of license we customarily use to protect our IP. In the event that the copyright holder of any open-source software were to successfully establish in court that we had not complied with the terms of a license for a particular work, we could be required to release the source code of that work to the public or stop distribution of that work if the license is terminated, which could adversely affect our business, results of operations, financial condition and prospects.

While we take steps to monitor the use of all open-source software in our products and try to ensure that no open-source software is used in such a way as to require us to disclose the source code to the related products when we do not wish to do so, such use could inadvertently occur. Additionally, if a third-party software provider has incorporated certain types of open-source software into software we license from such third party for our products, we could, under certain circumstances, be required to disclose the source code to our products. This could harm our IP position and have a material adverse effect on our business, results of operations, financial condition and prospects.

Further, although some open-source vendors provide warranty and support agreements, it is common for such software to be available “as-is” with no warranty, indemnity or support. Some of our products use open-source libraries that could contain vulnerabilities, and these may be discovered at any time. These vulnerabilities are often disclosed publicly without forewarning to the users of the software. Accordingly, our products may contain vulnerabilities originating from open-source software without our knowledge, and we may not have the opportunity to address such vulnerabilities before they are disclosed to the public. Although we monitor our use of open-source software to avoid subjecting our products to unintended conditions or vulnerabilities, such use, under certain circumstances, could materially adversely affect our business, results of operations, financial condition, prospects and reputation, including if we are required to take remedial action that may divert resources away from our development efforts.

Finally, from time to time we contribute software source code to open-source projects under open-source licenses. Any source code we contribute to open-source projects is publicly available. As such, our ability to protect our IP rights with respect to such software source code may be limited or lost entirely, and we may be unable to prevent our competitors or others from using such contributed software source code. Any of these risks could be difficult to eliminate or manage, and could harm our IP position and have a material adverse effect on our business, results of operations, financial condition and prospects.

It may be difficult for us to verify customer data, including royalty amounts owed to us under our licensing agreements, and this may cause us to lose revenues.

We seek to ensure that our customers adhere to the terms of our license agreements, including their obligation to provide certain data to us. We perform various procedures to assess customer data related to royalties for reasonableness, and our license agreements generally include rights for us to audit the books and records of our customers to verify certain types of customer data. However, audits can be expensive and time-consuming, and even after conducting an audit, it may still be challenging for us to verify the accuracy of information contained in customer royalty reports, or a customer could potentially object to the results of such audit. We can provide no assurances that our procedures to assess customer data and any audits that we undertake to verify the accuracy of our customers data will be successful. As a result, we may not always receive complete or accurate information (financial or otherwise) from our customers or obtain all royalty payments to which we

 

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are legally entitled, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Changes in our business model could have a material adverse effect on our business, results of operations, financial condition and prospects.

We have in the past made and may in the future make changes to our business model. We can provide no assurances that customers will accept these changes, which could result in lower revenues, particularly in the period immediately following the initial introduction of a new business model. In such case, we may not realize the anticipated financial benefits of such changes in the amounts we anticipate, on the expected timeline or at all. For example, we recently introduced new approaches to licensing certain of our products to our customers. As a result of introducing a relatively small annual fee under one new licensing model, for example, the payment by customers of fees under this new licensing model will be collected based on the negotiated annual fee leading to a deferral of upfront license fees that we have historically received under a TLA. This deferral of such licensing fees is expected to continue to have an adverse effect on our licensing revenue in the short term.

In addition, increases in the number or value of licenses signed in the future may not materialize in the same way or at all under a new business model and, therefore, licensing revenue and royalty revenue may be lower than expected. Further, the use of a new business model may have unexpected consequences for our company, including making our products less attractive to current and prospective customers, which could have a material adverse effect on our business, competitive position, results of operations, financial condition and prospects.

If we are engaged to design custom chips for one or more customers, we could be subject to a variety of risks, any of which could have a material adverse effect on our business, results of operations, financial condition and prospects.

In the future, we may be engaged to supply custom chip designs for certain existing customers and other third parties, including affiliates of SoftBank Group, across a variety of use cases and end markets. To the extent that we were in fact engaged to design custom chips for one or more customers, we would expect to partner with third parties, which may include affiliates of SoftBank Group, for technical expertise, financial support or other purposes to supplement our existing resources. Accordingly, we may need to rely on third parties over which we would exercise little or no control. In such circumstances, we could provide no assurances that any third parties with which we worked to design custom chips would dedicate the resources, or have the requisite technical or other capabilities, necessary to achieve our and our customers’ chip design expectations.

In addition, we can provide no assurances that customers would engage us to supply custom chip designs or, even if one or more customers were to engage us, that we would be successful in designing chips for our customers’ intended use cases. Customizing our chip designs for one or more customers may necessitate substantial investments in technology and human capital, and it could take several years for us to realize any associated benefits, if ever. This may reduce our cash available for operations and other uses, which could hurt our ability to grow our business. In addition, any efforts to design custom chips may require substantial time and attention from our executives, engineers and other employees, which could distract them from operating our business, and divert attention and resources away from our core business.

Furthermore, any decision to design custom chips for customers may create real or perceived competitive conflicts with companies that are important to our business, and as a result of such competition, such companies might terminate or materially reduce their relationship with us, particularly if we agreed to design chips exclusively for certain customers. If our relationships with existing customers deteriorated or terminated as a result of any opportunistic expansion into custom chip designs, our business, results of operations and prospects could be materially and adversely affected.

 

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We may be unable to make acquisitions and investments, or successfully integrate them into our business, and we may be unable to divest businesses on acceptable terms or at all.

As part of our business strategy, we consider a wide array of potential strategic transactions, including acquisitions of businesses, new technologies, services and other assets, joint ventures and strategic investments that complement our business. We may be unable to identify or complete prospective transactions for many reasons, including increasing competition from other potential acquirers or investors, the effects of consolidation in our industries or potentially high valuations of acquisition or investment candidates. Certain agreements to which we are subject from time to time may also contractually restrict our ability to make acquisitions and investments in some circumstances. In addition, applicable antitrust, national security (including with respect to the U.K. National Security and Investment Act 2021 or the Committee on Foreign Investment in the United States) or other laws or regulations may limit our ability to acquire, invest in or integrate targets, or may force us to divest an acquired business or impose restrictions on an investment. If we are unable to identify suitable targets or complete or successfully integrate acquisitions, our growth prospects may suffer, and we may not be able to realize sufficient scale and technological advantages to compete effectively in all markets. Acquisitions involve numerous risks, any of which could negatively affect our business, results of operations, financial condition and prospects, including with respect to timing or delays, diversion of financial and management resources from existing operations or alternative acquisition opportunities, subsequent litigation, retention of key employees or business partners, and theft of information disclosed during the transaction. If we fail to address the foregoing risks or other problems encountered in connection with past or future acquisitions of businesses, new technologies, services and other assets and strategic investments, or if we fail to successfully integrate such acquisitions or investments to realize anticipated benefits or synergies, our business, results of operations, financial condition and prospects could be adversely affected.

In addition, we have in the past divested and reduced, and may in the future divest or reduce, our investment in certain businesses or product lines from time to time. Such divestitures involve risks, such as the difficulty of identifying and separating out specific assets within a business, distracting employees, incurring potential loss of revenue and cash flow, negatively impacting margins, and potentially disrupting customer and employee relationships. We may also incur significant costs associated with exit or disposal activities, related impairment charges, or both.

There may be risks associated with organic growth or growth from strategic investments or acquisitions we make, and we may fail to effectively manage our growth.

We could experience rapid growth in our headcount and operations through acquisitions, strategic investments and organic growth. This growth can place significant demands on our management and our operational and financial infrastructure. Our ability to manage our growth effectively and to integrate new technologies, businesses and personnel into our existing business may require us to expand our operational and financial infrastructure and to address the retention, attraction, training, motivation and management of employees across a broader geographical and operational footprint. Such growth could strain our ability to develop and improve our operational, financial and management controls, enhance our reporting systems and procedures, recruit, train and retain highly skilled personnel, implement systems, policies, benefits and compliance programs across different jurisdictions, maintain our culture and maintain customer and brand satisfaction. Additionally, if we do not effectively manage the growth of our business and operations, the quality of our products and services could suffer, which could negatively affect our brand, operating results and overall business. The failure to effectively manage the growth of our strategic investments could also cause the value of such investments to decline. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, results of operations, financial condition and prospects could be materially and adversely affected.

 

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Our financial statements include significant amounts of goodwill and other intangible assets. The impairment of a significant portion of these assets would adversely affect our reported results of operations and financial position.

The goodwill and other intangible assets recognized in our financial statements represented 23.6% and 2.0%, respectively, of our total assets as of March 31, 2023 (25.1% and 3.1%, respectively, as of March 31, 2022). Within other intangible assets, our principal assets are our patents and licenses (6.5% of total other intangible assets as of March 31, 2023) and software or software assets under construction (90.6% of total other intangible assets as of March 31, 2023). Any further acquisitions may result in our recognition of additional goodwill or other intangible assets. We evaluate on a regular basis whether all or a portion of our goodwill and other intangible assets may be impaired. Under current accounting rules, any determination that impairment has occurred would require us to record an impairment charge, which would negatively affect our results of operations.

We recognized impairments for the fiscal year ended March 31, 2022 in relation to specific historically acquired or developed products that were no longer being licensed, and we have also recognized impairments in the past.

In addition, we capitalize and amortize the qualifying costs of internally developed software for its operating platforms and related back-office systems over the estimated useful lives of these intangible assets (generally between three and five years). If projects fail to deliver anticipated results in line with our estimates and assumptions, then we may be required to write-down the intangible asset costs, which could adversely affect our financial condition, results of operations and the trading price of our securities.

An impairment or write-down of a significant portion of goodwill, other intangible assets or capitalized development costs could have a material adverse effect on our reported results of operations and our financial position.

Our financial and operational flexibility may be restricted by covenants contained in loan agreements we may enter into in the future, and we may be unable to comply with the restrictions and financial and operational covenants imposed by such agreements.

We do not currently have any debt, but we may incur debt in the future. Future creditors may subject us to certain restrictions on our business and future financing activities as well as certain financial and operational covenants. Such restrictions and covenants may prevent us from taking actions that otherwise might be deemed to be in the best interest of us and holders of our ADSs. Debt service obligations may require us in the future to dedicate a substantial portion of our cash flows from operations to payments of principal and interest on our interest-bearing debt, which could limit our ability to obtain additional financing, make capital expenditures and acquisitions and carry out other general corporate activities in the future. Any such obligations may also limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate or detract from our ability to successfully withstand a downturn in our business or the economy in general.

Failure to obtain, maintain, protect, defend or enforce our IP rights could impair our ability to protect our proprietary products and our brand, and the costs of obtaining, maintaining, protecting, defending and enforcing such IP rights, particularly as a result of litigation, may adversely and materially affect our results of operations.

Our success and ability to compete depend significantly on protecting our IP rights. We primarily rely on patent, copyright, trade secret and trademark laws, trade secret protection and contractual protections, such as confidentiality, invention assignment and license agreements with our employees, customers, third-party partners and others, to protect our IP rights. The steps we take to protect our IP rights may be inadequate. We also may not be able to obtain desired patents, and our pending (of which we currently have approximately 2,700) or future

 

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patent applications, whether or not being currently challenged, may not result in the issuance of patents with the scope of protection we seek, including in jurisdictions of strategic importance and, if issued, may not provide any meaningful protection or competitive advantage. The scope of our patent protections may be adversely affected by changes in legal precedent and patent office interpretation of these precedents. Further, patents directed to particular subject matter associated with our business (e.g., CPU architecture) may be difficult to obtain and enforce in many jurisdictions and there may also be limits on recovery for damages in those jurisdictions. Any of our existing patents, and any future patents, may be challenged, narrowed, invalidated or circumvented. Further, we may be unsuccessful in executing adequate invention assignment agreements with all employees, contractors or other third parties involved in the development of our IP portfolio. In certain jurisdictions, rights to IP developed by our employees or contractors or other third parties may not automatically vest in us, and our employees or contractors or other third parties may claim ownership in IP that we believe is owned by us. We may also be required to spend significant resources to establish, monitor and protect our IP rights, particularly as we expand our operations globally.

Our exposure to different legal jurisdictions also may impact our ability to exercise our contractual and other rights around IP in such jurisdictions, in particular in countries whose laws regarding the protection of IP are less rigorous or more difficult to enforce than in the U.K., the U.S. and the European Union. In jurisdictions where effective IP protection is unavailable or limited, our IP rights may be vulnerable to unauthorized disclosure, infringement, misappropriation or other violation by employees, third-party partners, suppliers, customers and other entities or individuals, even though our customers and partners are contractually restricted from using our IP outside of the agreed-upon licensing arrangements. Policing unauthorized use of our IP is difficult and expensive, and we may not be able, or may lack the resources, to prevent infringement, misappropriation or other violation of our IP rights, including increased difficulty as a foreign entity in certain international locations, particularly outside the U.K., the U.S. and the European Union. In addition, our ability to monitor and control theft, misappropriation or infringement is uncertain, particularly in countries outside of the U.K., the U.S. and the European Union, as the laws of some countries do not provide the same level of protection of our proprietary and confidential information as do the laws of the U.K., the U.S. and the European Union. Moreover, because we deliver our products to our customers in a source form, we have limited ability to trace the source of misappropriation of our IP and there are limited technological barriers (e.g., remote authorization requirements) we can put in place to protect our products from use by unauthorized parties. Additionally, theft of our IP or proprietary business information (including our trade secrets) could require substantial expenditures and resources to remedy. If we, our employees or our third-party partners, consultants, contractors, vendors or service providers were to suffer an attack or breach, for example, that results in the unauthorized access to, or use, theft, disclosure, misappropriation or sale of, our IP by any unauthorized third parties, we may have to notify consumers, partners or governmental authorities, and may be subject to investigations, civil penalties, administrative and enforcement actions and litigation, any of which could be costly and distracting or otherwise harm our business and reputation.

We may be unable to successfully obtain, maintain, protect and enforce our IP rights (including defending against counterfeit, knock-off, grey-market, infringing or otherwise unauthorized goods). Specifically, third parties may distribute, license and sell counterfeit or grey-market versions of our products, which may be inferior or pose safety risks and could confuse consumers or customers, which could cause them to refrain from purchasing our brands in the future or otherwise damage our reputation. The presence of counterfeit versions of our products and technology in the market could also dilute the value of our brands, force us and our customers to compete with heavily discounted products and technology, cause us to be in breach of contract (including license agreements), impact our compliance with distribution and competition laws in jurisdictions including the U.K., the U.S., the European Union and the PRC, or otherwise have a negative impact on our reputation and business, prospects, financial condition or results of operations. Further, we may not be able to detect all violations of our IP rights and, even if we do become aware of any such violations, we may not be able to adequately enforce our IP rights in certain domestic and foreign jurisdictions. If we are unable to successfully navigate the relevant legal and regulatory environment and/or enforce our IP rights and/or contractual rights in

 

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relevant jurisdictions, our business, results of operations, financial condition and prospects could be materially and adversely impacted.

Litigation may be necessary in the future to enforce our patents and other IP rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement, misappropriation or invalidity. Any such litigation, whether or not determined in our favor or settled by us, could be costly and would divert the efforts and attention of our management and technical personnel from normal business operations, which could have a material adverse effect on our business, results of operations, financial condition and prospects. Furthermore, our efforts to enforce our IP rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our IP rights. In addition, counterparties in litigation may have greater resources that they can dedicate to litigation-related matters than we can. Moreover, litigation against current or former customers and partners may adversely impact existing relationships. Accordingly, we may not be able to prevent third parties from infringing, misappropriating or otherwise violating our IP rights. See also “—We may be sued by third parties for alleged infringement, misappropriation or other violation of their IP rights or proprietary rights and our defense against these claims can be costly.”

In any potential dispute involving our patents or other IP, our licensees or the customers of our licensees could also become the target of litigation and we may be bound to indemnify such parties under the terms of our license agreements. Although our indemnification obligations are generally subject to a maximum amount, such obligations could nevertheless result in substantial expenses to us. See “Business—Legal Proceedings.” In addition to the time and expense required for us to indemnify our licensees or the customers of our licensees, such parties’ development, marketing and sales of chips and end products utilizing our products could be severely disrupted or discontinued as a result of litigation, which, in turn, could have a material adverse effect on our business, results of operations, financial condition and prospects.

Moreover, the semiconductor industry is generally subject to high turnover of employees, so the risk of trade secret misappropriation may be amplified. If any of our trade secrets are subject to unauthorized disclosure or are otherwise misappropriated by third parties, our competitive position may be materially and adversely affected.

Any adverse determinations in litigation could result in the loss of our IP rights or proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties or prevent us from licensing our products, any of which could have a material adverse effect on our business, results of operations, financial condition and prospects. Our failure to obtain, maintain, protect, defend and enforce our IP rights could have a material adverse effect on our brand or our business, results of operations, financial condition and prospects. Furthermore, because our products are often based on a common architecture and our new products are often based on legacy products, adverse events related to our IP may have a more significant impact on us than if our products were less related.

We may be sued by third parties for alleged infringement, misappropriation or other violation of their IP rights or proprietary rights and our defense against these claims can be costly.

We have in the past been and may in the future be subject to claims by third parties alleging our infringement, misappropriation or other violation of third-party IP rights, including patent rights, or misuse of third-party confidential information. Under our customer agreements, we agree in some cases to indemnify our customers if a third party files a claim in court or another venue asserting that our products infringe such third party’s IP rights. Although we do not agree to indemnify our customers’ end customers, such end customers may be subject to infringement claims and may initiate claims against us as a result. Claims alleging infringement, misappropriation or other violation of third-party IP rights can result in costly and time-consuming litigation (regardless of their validity or merit), require us to enter into royalty or licensing arrangements, subject us to damages or injunctions restricting the sale of our products, result in the invalidation of a patent or family of patents, require us to refund license fees to our customers or to forgo future payments or require us to redesign or

 

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rebrand certain of our products, any one of which could have a material adverse effect on our business, results of operations, financial condition and prospects.

In addition to the time and expense required for us to satisfy our support and indemnification obligations to our customers and partners, any litigation could severely disrupt or shut down the business of our customers and partners, which in turn could damage our relations with them and have a material adverse effect on our business, reputation, results of operations, financial condition and prospects.

We are currently involved in pending litigation.

From time to time, we are involved in various legal, administrative and regulatory proceedings, claims, demands and investigations relating to our business, which may include claims with respect to commercial, product liability, IP, cybersecurity, privacy, data protection, antitrust, breach of contract, labor and employment, whistleblower, mergers and acquisitions and other matters. We are involved in pending litigation, including, but not limited to, a lawsuit with Qualcomm Inc. and Qualcomm Technologies, Inc. (together “Qualcomm”) and Nuvia, Inc. (“Nuvia”). In addition, our products are involved in pending litigation to which we are not a party. We cannot provide you any assurances regarding how any such litigation will be resolved, what benefits we will obtain or what losses we might incur.

On August 31, 2022, we sued Qualcomm and Nuvia in the U.S. District Court for the District of Delaware, on the basis that Qualcomm and Nuvia: (i) breached the termination provisions of Nuvia’s Architecture License Agreement (the “Nuvia ALA”) with us by failing to destroy technology Nuvia developed under the Nuvia ALA, which we terminated in March 2022 based on Nuvia’s failure to obtain our consent to the assignment of the Nuvia ALA to Qualcomm; and (ii) will infringe our trademarks when Qualcomm uses them in connection with the Nuvia technology subject to destruction under the Nuvia ALA. Our complaint seeks, among other things, specific performance of the Nuvia ALA termination provisions to require Qualcomm and Nuvia to stop using and to destroy the relevant Nuvia technology and to stop their improper use of our trademarks with their related products. We also seek declaratory judgment, injunctive relief and damages relating to Qualcomm’s and Nuvia’s breach of contract and infringement of our trademarks in connection with the relevant Nuvia technology. Qualcomm has responded and brought a counterclaim against us seeking a declaratory judgment that after Qualcomm’s acquisition of Nuvia, Qualcomm’s proposed products are fully licensed from us under its separate license agreements with us and that it has complied with its contractual obligations to us and Nuvia did not breach the Nuvia ALA. We and Qualcomm can amend our respective claims to seek additional or different relief as the proceedings progress. We can provide no assurances regarding the outcome of the litigation or how the litigation will affect our relationship with Qualcomm, which is currently a major customer of ours and accounted for 11% of our total revenue for the fiscal year ended March 31, 2023. This case is currently in the discovery phase, with trial set for September 2024, and will likely require significant legal expenditures going forward. It may also require substantial time and attention from our executives or employees, which could distract them from operating our business. In addition, our involvement in such litigation could cause us to incur significant reputational damage in the industry, in our relationship with Qualcomm or in our relationship with other third-party partners.

These matters can be time-consuming, divert management’s attention and resources, cause us to incur significant expenses and lead to attempts on the part of other parties to pursue similar claims. Allegations made in the course of regulatory or legal proceedings may also harm our reputation, regardless of whether there is merit to such claims. Furthermore, because litigation and the outcome of regulatory proceedings are inherently unpredictable, our business, results of operations, financial condition and prospects could be materially adversely affected by an unfavorable resolution of one or more of these proceedings, claims, demands or investigations.

 

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Errors, defects, bugs or security vulnerabilities in or associated with our products could expose us to liability and damage our brand and reputation, which could harm our competitive position and result in a loss of market share.

Our products have in the past and could have a substantial technical flaw or an undetected design error, which could result in unanticipated costs. Our products are used in billions of consumer and enterprise products across a wide range of industries, and many of these products are depended on by individuals and businesses. The discovery of any design defect, fault or bug associated with our products, as well as any ensuing litigation or claims for indemnification could adversely affect our reputation and our relationships with partners, thereby having a material adverse effect on our business, results of operations, financial condition and prospects. Any such defects, faults or bugs could cause us to lose customers, increase our service costs, subject us to liability for damages or divert our resources from other tasks, any one of which could materially and adversely affect our business, results of operations, financial condition and prospects. The ramifications of a design defect, fault, or bug may be further exacerbated by the fact that many of our products are based on a common architecture and our new architecture products often are based on legacy products. Accordingly, a design defect, fault, or bug may affect multiple end products that are based on the same products, thereby potentially exposing us to additional liability and requiring additional resources to remedy the error.

In addition, our software could contain errors, defects or bugs, especially when first introduced or when new versions are released. Product errors, including those resulting from third-party suppliers and open-source vendors, could affect the performance or interoperability of our products, could delay the development or release of new products or new versions of products and could adversely affect market acceptance or perception of the quality and attractiveness of our products. Any such errors or delays in releasing new products or new versions of products, or allegations of unsatisfactory performance, could cause us to lose customers, increase our service costs, subject us to liability for damages or divert our resources from other tasks, any one of which could materially and adversely affect our business, results of operations, financial condition and prospects.

Security vulnerabilities may be identified in our products, and it is possible that vulnerabilities may not be mitigated before they become known. Publicity related to any such security vulnerabilities, whether accurate or inaccurate, and any attempted or successful exploitation of such vulnerabilities, may cause increased third-party attempts to identify additional security vulnerabilities or could result in litigation, indemnification or other regulatory actions or inquiries, which could harm our brand and have an adverse effect on our business and results of operations and financial performance.

Additionally, our products are used, and may be used in the future, in a variety of safety critical systems and equipment, including, but not limited to, autonomous vehicles, robotics, drones and medical equipment. Faults, security vulnerabilities or errors in such systems can result in harm to individuals, including loss of life. Any such fault, security vulnerability, or errors that may be attributed to our products, regardless of merit, could result in litigation, indemnification obligations or regulatory actions or inquiries, which could harm our brand and have a material adverse effect on our business, results of operations and financial performance.

Actual or perceived security vulnerabilities in our information technology systems, including cyberattacks, security breaches or other similar incidents with respect to our or our third-party partners’ information technology systems, or any unauthorized access to our data or our third-party partners’ and our customers’ data, could harm our reputation, business and operating results.

We collect, store and otherwise process certain personal, confidential and proprietary information in the operation of our business, including trade secrets, employee data and other sensitive data. Further, our third-party partners and customers regularly provide us with highly sensitive information, including details about their future product plans and roadmaps. Any unauthorized access to or disclosure of this information, whether inadvertent, malicious or as the result of a cyberattack, security breach or other similar incident, could have a material adverse effect on our third-party partners and customers, which may in turn result in significant damage to our reputation, business and operating results.

 

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Cyberattacks, including, but not limited to, ransomware events, computer viruses or other malware, phishing attacks, denial of service attacks, illegal hacking and credential stuffing, or other malicious attempts to compromise and/or interrupt the operation of information technology systems continue to increase in frequency, magnitude and sophistication. These increasing threats are being driven by a variety of sources, including nation-state sponsored espionage and hacking activities, industrial espionage, organized crime, sophisticated organizations and hacking by groups and individuals. These sources can also implement social engineering techniques to induce our third-party partners, users, employees or customers to disclose passwords or other sensitive information or take other actions to gain access to our or our third-party partners’ data or our users’ data. Techniques used to obtain unauthorized access to, or to sabotage, systems or networks are constantly evolving and may not be recognized until launched against a target. Therefore, we may be unable to anticipate these techniques, react in a timely manner, or implement adequate preventive measures, and we may face delays in our detection or remediation of, or other responses to, such cyberattacks, security breaches and other similar incidents. Geopolitical instability, such as the war between Russia and Ukraine, may increase the likelihood that we or our third-party partners and customers could experience direct or collateral consequences from cyber conflicts between nation-states or other politically motivated actors targeting critical technology infrastructure. As we increase our customer base and our brand becomes more widely known and recognized, and as our products are used in more heavily regulated industries where there may be a greater concentration of sensitive and protected data, such as healthcare, government, life sciences and financial services, we and our third-party partners may become more of a target for these malicious third parties.

Cyberattacks, security breaches or other similar incidents with respect to our information technology systems or those of our third-party partners could result in unauthorized access to, or misappropriation, disclosure, modification, misuse, loss, destruction or theft of, personal, confidential and proprietary information belonging to us or our employees, third-party partners, customers or suppliers, or cause a significant disruptive effect on our services, which could result in us, our third-party partners or our customers suffering significant financial or reputational damage and potential third-party legal action. If our security measures are, or are believed to be, inadequate or breached as a result of third-party action, employee negligence, error or malfeasance, fraud, product defects, accidental technological failure, social engineering techniques, improper user configuration or otherwise, and this results in, or is believed to result in, actual disruption of the confidentiality, integrity or availability of our data or our third-party partners’ and customers’ data, or otherwise causes a significant disruptive effect on our services, we could incur significant liability to various parties, including our third-party partners and customers, and to individuals or organizations whose information is being stored by us, our third-party partners or our customers. Further, such information and data being stored in foreign jurisdictions, could lead to us being required to disclose or provide access to data or IP to a foreign government pursuant to national security or other laws of such foreign jurisdiction. Any perceived or actual violation of security, data protection and/or reporting obligations under relevant privacy and data protection laws, regulations, rules, standards and other obligations could also result in regulatory inquiries, investigations and enforcement actions, fines and/or legal action. We incur significant costs in an effort to detect and prevent cyberattacks, security breaches and other similar incidents, and we may face increased costs and be required to expend substantial resources in the event of an actual or perceived cyberattack, security breach or other similar incident. While we and our third-party partners and customers have experienced cyberattacks, including attempts to breach our information technology systems, and may experience cyberattacks in the future, as of the date of this prospectus, there have been no material breaches of our information technology systems. We can provide no assurances that we will not experience material breaches of our information technology systems in the future or that our third-party partners and customers will not experience breaches of their information technology systems in the future that are material to us.

Additionally, our vendors or service providers may suffer, or be perceived to suffer, cyberattacks, security breaches or other similar incidents that may compromise data stored or processed for us, which may also give rise to any of the foregoing. Our ability to monitor our vendors’ and service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, or misuse, disclosure, loss, acquisition, modification, unavailability, destruction or other processing of,

 

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our and our customers’ data. If our vendors or service providers suffer cyberattacks, security breaches or other incidents, we may be unable to perform essential functions to operate our business. Moreover, to the extent any of our IP is compromised as a result of a security breach and we are not promptly made aware of such breach, we may incorporate compromised IP in our products, thereby making our products vulnerable to future cyberattacks, security breaches or other similar incidents.

We cannot ensure that any limitations of liability in our agreements with customers, third-party partners, service providers and other third parties with which we do business would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim in connection with a cyberattack, security breach or other similar incident. Additionally, we cannot be certain that our insurance coverage will be adequate for cybersecurity liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that our insurer will not deny coverage as to any future claim. Any of the foregoing may cause our business to suffer and our reputation or competitive position to be damaged, which may have a material adverse effect on our business, results of operations, financial condition and prospects.

Any failure, interruption, disruption, damage or outage with respect to our information technology systems, including or due to an inability to operate our disaster recovery plans to adequately mitigate the effects of such, could adversely affect our reputation, operations and financial condition.

Our business depends on the efficient and uninterrupted operation of our computer and communications software and hardware systems and other information technology. If such information technology systems were to fail for any reason or if we were to experience any unscheduled downtimes, even for only a short period, our reputation, operations and financial results could be adversely affected. Our information technology systems could be damaged or interrupted by earthquakes, fire, floods, hurricanes, power loss, telecommunications failure, break-ins, acts of vandalism or similar events. In addition, our information technology systems could be damaged or interrupted as a result of potential cyberattacks, such as ransomware events, malware, phishing attacks, insider threats, viruses, or any other malicious attempts to compromise and/or interrupt the operation of our information technology systems, or security breaches and other similar incidents. In addition, certain types of attacks could harm us even if our systems are left undisturbed. For example, certain threats are designed to remain dormant or undetectable, sometimes for extended periods of time, or until launched against a target, and we may not be able to implement adequate preventative measures.

The formal disaster recovery plans we have in place may not be successful in preventing delays or other complications that could arise from information technology systems failure and, if they are not successful, our business interruption insurance may not adequately compensate us for all losses that may occur and have a material adverse effect on our business, results of operations, financial condition and prospects.

Claims may be made for which we do not have adequate insurance, which could have a material adverse effect on our results of operations, cash flows and financial condition.

In recent years, the insurance industry has faced unprecedented and escalating global events compounded by international economic uncertainty. As a result of these and other pressures, many insurers have withdrawn from certain market sectors and certain available insurance has become costly to procure, renew or maintain. We currently have global insurance policies, including coverage for the following significant risks (all of which are subject to certain important scope limitations, exceptions and company/deductible arrangements): property damage, business interruption, employee liability, public and products liability, directors’ and officers’ liability, and cybersecurity and technology-related losses. We do not insure against claims concerning patent litigation or other IP infringement claims and potential related indemnification obligations, because we are of the view that any limited coverage that could be obtained would be prohibitively expensive. Our business, results of operations, financial condition and prospects could be materially adversely affected by the occurrence of a catastrophic event, to the extent that any resulting loss or claim was not covered under the terms of our then existing insurance policies.

 

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Foreign exchange fluctuations could have a material adverse effect on our business, results of operations, financial condition and prospects.

Although a substantial majority of our revenues, as well as a significant proportion of our assets and liabilities, are denominated in U.S. dollars, certain of our costs are denominated in British pounds sterling and a number of other currencies, such as the euro and Indian rupee. Consequently, our results of operations have been, and are likely to continue to be, affected by changes in the relative value of the various currencies in which our revenues, costs, assets and liabilities are denominated, and especially the U.S. dollar to British pound sterling exchange rate, as well as the exchange rates to the euro and Indian rupee, may have a material impact on our reported results of operations and financial condition. To manage our exposure, we may engage in the use of financial derivatives or currency hedging transactions, although such activities may not cover all of our exposure, may be costly and may also expose us to counterparty risk. Despite hedging and other mitigating techniques implemented by us, fluctuations in exchange rates have in the past and may in the future have a material adverse effect on our business, results of operations, financial condition and prospects.

We could suffer significant damage to our brand and reputation, which could harm our competitive position, results of operations and prospects.

Our brand and reputation are critical factors in our relationships with customers, employees, governments, suppliers, and other stakeholders. Our failure to address, or the appearance of our failure to address, issues that give rise to reputational risk, including those described throughout this “Risk Factors” section, could significantly harm our brand and reputation. Our reputation can be impacted by catastrophic events, incidents involving unethical behavior or misconduct, product quality, security, or safety issues, allegations of legal noncompliance, internal control failures, corporate governance issues, data breaches, workplace safety incidents, environmental issues, the use of our products for illegal or objectionable applications, including AI and ML or military applications that present ethical, regulatory, or other issues, marketing practices, media statements, the conduct of our suppliers or representatives, and other issues, incidents, or statements that, whether actual or perceived, result in adverse publicity. To the extent we fail to respond quickly and effectively to address corporate crises and other threats to our brand and reputation, the ensuing negative public reaction could significantly harm our brand and reputation, which could result in loss of trust from our customers, third-party partners and employees and could lead to an increase in litigation claims and asserted damages or subject us to regulatory actions or restrictions.

In addition, our brand and reputation may be damaged by the actions of third parties that are imputed to us. For example, although Arm China operates independently of us, Arm China uses our trademarks in its marketing and branding. To the extent that Arm China’s actions are imputed to us due to Arm China’s use of our trademarks, our own brand and reputation may suffer significant damage.

Damage to our brand and reputation could reduce demand for our products and adversely affect our business, operating environment and the trading price of our securities. Damage to our reputation may also make us less attractive to current and prospective employees relative to our competitors, particularly given the intensely competitive market for highly skilled employees. Moreover, repairing our brand and reputation may be difficult, time-consuming, and expensive. The heightened competitive pressures could result in a loss of customers or a reduction in revenues or revenue growth rates, all of which could adversely affect our business, results of operations, financial condition and prospects.

Increasing scrutiny and evolving expectations from customers, partners, regulators, investors, and other stakeholders with respect to our environmental, social and governance (“ESG”) practices may impose additional costs on us, expose us to new or additional risks, or harm our reputation.

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diversity and inclusion, racial justice and workplace conduct. In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings may lead to negative investor sentiment toward us, which could have a negative impact on the trading price of our securities and our access to and costs of capital. Increased ESG-related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and the trading price of our securities. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.

We have established corporate social responsibility programs aligned with sound ESG principles. These programs reflect our current initiatives and are not guarantees that we will be able to achieve them. Our ability to successfully execute these initiatives and accurately report our progress presents numerous operational, financial, legal, reputational and other risks, many of which are outside our control, and all of which could have a material negative impact on our business. Additionally, the implementation of these initiatives imposes additional costs on us. If our ESG initiatives fail to satisfy investors, customers, partners and our other stakeholders, our reputation, our ability to license our products to customers, our ability to attract or retain employees, and our attractiveness as an investment, business partner or acquirer could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfil our goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to government enforcement actions and private litigation. See “Business—Environmental, Social and Governance” for additional information regarding our corporate social responsibility programs.

We have identified a material weakness in our internal control over financial reporting and may identify material weaknesses in the future or otherwise fail to maintain proper and effective internal controls. If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our ADSs.

We will be required, pursuant to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), to furnish a report from management on, among other things, the effectiveness of our internal control over financial reporting in our second annual report on Form 20-F that is filed with the SEC (subject to any change in applicable SEC rules). We also expect, assuming that we will become a large accelerated filer, that our auditors will be required to express an opinion on the effectiveness of our internal control over financial reporting beginning with our second annual report on Form 20-F. As a public company, we will be required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A “significant deficiency” is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

The material weakness identified for the fiscal years ended March 31, 2022 and 2021 relates to information technology general controls over information systems that are necessary for preparation of our financial statements, specifically (i) insufficient controls over user access rights and segregation of duties within our information systems, (ii) insufficient controls over change management of our information systems and (iii) insufficient controls over monitoring of batch processes. To address the material weakness, in the fiscal year ended March 31, 2023, we developed and began a remediation plan that includes the following activities: (i) improving controls over access rights management, including reviews of current access rights, user roles and access management procedures, (ii) the removal of excessive access rights to ensure that we adequately restrict user access to our financial applications to appropriate company personnel, (iii) expanding change management

 

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control procedures for our information systems, and (iv) engaging external experts to support the evaluation, testing and enhancement of our internal controls relating to our information technology systems. We will not be able to fully remediate this material weakness until these steps have been completed and have been operating effectively for a sufficient period of time. The actions that we are taking are subject to ongoing review by our executive management and will be subject to the oversight of our audit committee. Although we intend to complete this remediation process as quickly as practicable, we provide no assurances with respect to the timeline for implementing effective remedial measures, and our initiatives may not prove to be successful in remediating the material weakness or preventing additional material weaknesses or significant deficiencies in our internal control over financial reporting in the future. The costs of the remediation efforts to date have not been material, and we do not currently anticipate any material cash requirements in connection with future remediation efforts.

To comply with the requirements of being a public company, we have undertaken various actions, and may need to take additional actions, such as implementing and enhancing our internal controls and procedures and hiring additional accounting or internal audit staff. Additionally, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, if we are required to make restatements of our financial statements, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in our operating results, the price of our ADSs could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404, we may not be able to remain listed on Nasdaq.

Risks Relating to Government Regulation and Legal Compliance

Our international operations expose us to risks in international jurisdictions and we may be negatively impacted by export restrictions and trade barriers.

Our headquarters are in the U.K., and we currently also have operations in various jurisdictions around the world, including the U.S., the PRC, India, Canada, South Africa and Europe. We may in the future expand our operations either within these jurisdictions or to new jurisdictions. Risks associated with these international operations include exposure to political, economic and financial conditions and expected and unexpected changes in legal and regulatory environments. We may, from time to time, enter into strategic partnerships, joint ventures or similar business relationships with entities in foreign jurisdictions, including governmental or quasi-governmental entities, pursuant to which we may be required to license or transfer certain of our IP rights to such entities. Such relationships could expose us to increased risks inherent in such activities, such as protection of our IP, economic and political risks, and contractual enforcement issues. In addition, we could face potentially adverse tax consequences from our international expansion, changes in our international operations or changes in tax laws in any of the multiple jurisdictions in which we operate. Managing operations in multiple jurisdictions also places further strain on management’s time and our ability to manage overall growth. These risks could have a material adverse effect on our business, results of operations, financial condition and prospects.

We are subject to governmental export and import requirements that could subject us to liability or restrict our ability to license our products. If the U.S. Department of Commerce were to broaden U.S. export restrictions on foreign-origin items, whether through changes to the level of de minimis U.S.-origin content that would make a non-U.S.-made product subject to the U.S. Export Administration Regulations (“EAR”), known as the de minimis rule, or through changes to the foreign direct product rules under the EAR, these expanded restrictions would subject more of our products to U.S. export controls and impose export restrictions on the licensing and delivery of impacted items to certain customers and trading partners. Furthermore, if the U.S. Government implemented expanded economic sanctions on specific countries or regions, that could impact our

 

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portfolio. For instance, the U.S. has published significant changes to export sanctions regulations with respect to Russia and the PRC, and we anticipate additional changes to such regulations in the future. In October 2022, the U.S. Government implemented export controls on advanced computing chips, computer commodities that contain such chips, and certain semiconductor manufacturing items, as well as controls on transactions involving items for supercomputer and semiconductor manufacturing end-uses. The new controls expand the scope of items subject to license requirements for certain entities on the U.S. Government’s Entity List (as defined below). As a result, our freedom to license our products to designated countries or entities could be reduced, and our commercial relationships could be further harmed by limiting the ability of certain of our customers and partners from freely shipping chips and end products incorporating certain of our products. For instance, given U.S. and U.K. trade and national security policies regarding exports of technology with potential military uses, it is unlikely that we would be able to obtain a U.S. or U.K. export license for certain high performance compute cores in the Neoverse series processor family. This and any similar limitations could also reduce our revenues and cause significant uncertainty in our products roadmap, which could have an adverse effect on our business, results of operations, financial condition and prospects.

In addition, if other countries, particularly the U.K., were to adopt export control rules similar to the U.S., or make existing rules more onerous, this could have a material adverse effect on our business, results of operations, financial condition and prospects.

In addition, trade relations between countries where we do business or where our customers have end customers has recently been volatile. For example, the U.S. Government has imposed export sanctions on certain trading partners and entities which impact the cross-border transfer of technology and software products and announced new licensing requirements which impact exports of some of our customer’s ICs and certain related items. These measures may increase costs and/or reduce distribution in key markets. This in turn could require us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices to adequately address any restrictions, it could result in lower margins on products sold or fewer products sold, which would reduce royalties. Changes in U.S. trade policy have resulted in, and could result in more, U.S. trading partners adopting responsive trade policies, including imposition of increased tariffs, quotas or duties, or imposition of technology or financial sanctions or controls, making it more difficult or costly for us to export our products to those countries. The implementation of a border tax, tariff or higher customs duties on products of our customers or their end customers manufactured outside of the U.S. or components that our customers or their end customers import into the U.S., or any potential corresponding actions by other countries in which our customers or their end customers do business, could negatively impact our financial performance and/or ability to protect our IP. Such developments could also result in a decrease in the demand for or injunctions on the products of our customers or their end customers, which would reduce our royalties and have an adverse effect on our revenues and profitability and thereby on or business, results of operations, financial condition and prospects. See “—Risks Relating to Our Business and Industry—Our concentration of revenue from the PRC market makes us particularly susceptible to economic and political risks affecting the PRC, which could be exacerbated by tensions between (on the one hand) the U.S. or the U.K. and (on the other hand) the PRC with respect to trade and national security.”

Failure to comply with, and changes in, governmental laws and regulations could harm our business.

Our business is subject to regulation by various governmental agencies, including, but not limited to, such agencies in the U.K., the European Union, the U.S. and the PRC. These laws and regulations affect our activities in areas including, but not limited to, labor, telecommunications, IP ownership and infringement, tax, economic sanctions, import and export requirements and controls, anti-corruption, national security and foreign investment, foreign exchange controls and cash repatriation restrictions, privacy and data protection (such as the European Union General Data Protection Regulation (“GDPR”), the U.K. General Data Protection Regulation (“U.K. GDPR”), and the California Consumer Privacy Act as amended by the California Privacy Rights Act (collectively, “CCPA”)), security and cybersecurity, and anti-competition, environmental, health and safety, financial reporting and the certification requirements associated with public sector contracts. These laws, regulations and orders are complex, may change frequently and with limited notice, and many have become more stringent and have intensified over time, especially in light of continuing tensions between the U.S. and the PRC and sanctions on Russia and individual Russians as a result of the ongoing war in Ukraine.

 

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The Retained EU Law (Revocation and Reform) Act 2023, enacted on June 29, 2023 has the effect that certain rights derived from European Union law will by default (that is, absent the exercise of a regulation-making power to restate or reproduce such rights in U.K. domestic law) cease to be recognized after December 31, 2023. As a result, rights derived from European Union law would cease to restrict the application of the rules providing for the 1.5% U.K. stamp duty or SDRT charge which may impact on the issue or transfer of our ordinary shares to, or appropriation of our ordinary shares by, a depositary receipt system (such as that operated by the depositary) or a clearance service (such as that operated by DTC). The extent to which rights derived from European Union law will be restated or reproduced in U.K. domestic law before that date is currently unclear. Any divergence between U.K. law and European Union law (as a result of the Retained EU Law (Revocation and Reform) Act 2023) may increase the burden of our associated compliance costs.

Compliance with these laws, regulations and similar requirements may be onerous, expensive and time consuming. Laws and regulations are often inconsistent from jurisdiction to jurisdiction, further increasing the cost and complexity of compliance. We have implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations or our policies and procedures. In addition, inadequate systems and processes have in the past and could in the future result in non-compliance with applicable laws and regulations (and this can be particularly challenging in complex areas such as licensing and export controls). We may be required to incur significant expense to remedy violations of these laws and regulations.

In addition, if our customers fail to comply with these regulations, we may be required to suspend sales to these customers, which could damage our reputation and negatively impact our results of operations. For example, the Bureau of Industry and Security (“BIS”), of the U.S. Department of Commerce, maintains and frequently updates the “Entity List,” which limits our ability to deliver products and services to these entities, some of which are our customers. On May 16, 2019, the BIS added Huawei Technologies Co., Ltd. and certain of its affiliated entities to BIS’s Entity List, which imposes limitations on the supply of certain U.S. items and product support to Huawei and certain of its affiliated entities. Huawei remains on the Entity List, and in the absence of a license from BIS, we may be unable to work with Huawei and certain of its affiliated entities on certain U.S. items and technology, which may have a negative effect on our ability to sell those U.S. items and technology in the future. Anticipated or actual changes in trade restrictions could also affect customer purchasing behaviors.

Non-compliance with applicable laws, regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, financial condition and prospects could be materially adversely affected and our reputation and brand could be damaged. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees.

Actual or perceived failures to satisfy data protection, security, privacy or other laws, regulations, rules, standards and other government- and industry-specific obligations could adversely affect our business, results of operations, financial condition and reputation.

Privacy and data protection has become a significant issue in the U.K., the U.S., the European Union and in many other jurisdictions where we operate and where the chips and end products incorporating our products are offered. The regulatory framework for privacy and data protection issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future, which could expose us to further regulatory burdens. Many government bodies and agencies, including in the U.K., the European Union and the U.S., have adopted or are considering adopting or modifying laws and regulations addressing privacy and data protection, including the collection, storage, transfer, use and other processing of personal information. In some cases, privacy and data protection laws, regulations and rules impose obligations directly on us as both a data controller and a data processor (or the equivalents thereof), as well as on many of our customers. Certain jurisdictions have also

 

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enacted data localization laws mandating that certain types of data collected in a particular country be stored and/or processed primarily within that country. Laws, regulations and rules relating to privacy and data protection continue to evolve in various jurisdictions, with existing laws, regulations and rules subject to new and differing interpretations and new laws, regulations and rules being proposed and adopted. It is possible that our practices may be deemed not to comply with those privacy and data protection legal requirements that apply to us now or in the future.

In the European Union and in the U.K., we are subject to the GDPR and the U.K. GDPR, respectively, which impose stringent obligations regarding the collection, control, use, sharing, disclosure and other processing of personal data. Failure to comply with the GDPR or the U.K. GDPR can result in significant fines and other liability, including fines of up to €20 million (or £17.5 million under the U.K. GDPR) or 4% of annual global revenue, whichever is greater. European data protection authorities have already imposed fines for GDPR violations up to, in some cases, hundreds of millions of euros. While the U.K. GDPR currently imposes substantially the same obligations as the GDPR, the U.K. GDPR will not automatically incorporate changes to the GDPR going forward (which would need to be specifically incorporated by the U.K. government), which creates a risk of divergent parallel regimes and related uncertainty. For example, in 2021, the European Commission announced an adequacy decision concluding that the U.K. ensures an equivalent level of data protection to the GDPR, which provides some relief regarding the legality of continued personal data flows from the European Economic Area (“EEA”) to the U.K. This adequacy determination will automatically expire in June 2025 unless the European Commission renews or extends it and may be modified or revoked in the interim. We cannot predict how the U.K. GDPR and other U.K. privacy and data protection laws, regulations or rules may develop, including as compared to the GDPR, nor can we predict the effects of divergent laws and related guidance. Moreover, the U.K. government has publicly announced plans to reform the U.K. GDPR in ways that, if formalized, are likely to create a risk of divergent parallel regimes and related uncertainty, along with the potential for increased compliance costs and risks for affected business.

In addition, ongoing legal challenges in Europe to the mechanisms allowing companies to transfer personal information from the EEA to outside the EEA (including the U.S.) could result in further limitations on the ability to transfer data across borders, particularly if governments are unable or unwilling to reach new agreements that support cross-border data transfers. While the European Commission adopted on July 10, 2023 an adequacy decision for the EU-U.S. Data Privacy Framework, enabling U.S. companies who certify to the EU-U.S. Data Privacy Framework to rely on it as a valid data transfer mechanism, such adequacy decision is likely to face challenge at the Court of Justice of the European Union. While the EU-U.S. Data Privacy Framework does not apply to the U.K., the U.K. and U.S. governments announced on June 8, 2023 a commitment in principle to establish a data bridge for the U.K. Extension to the EU-U.S. Data Privacy Framework, to facilitate transfers of personal data from the U.K. to the U.S.

Further, our business may be affected by laws, regulations, rules and standards aimed at regulating the use of personal information for marketing purposes, the tracking of the online activities of individuals and the regulation of machine-to-machine communications. For example, the European Union’s proposed ePrivacy Regulation, which is still being negotiated, may impose burdensome requirements around obtaining consent and impose fines for violations that are materially higher than those imposed under the European Union’s current ePrivacy Directive and related EU member state legislation. Compliance with these laws, regulations, rules and standards may limit the effectiveness of our marketing activities and subject us to liabilities.

In the U.S., we are subject to various federal, state and local privacy and data protection laws, rules, and regulations governing the collection, sharing, use, retention, disclosure, security, transfer, storage and other processing of personal information. For example, at the state level, we are subject to the CCPA, which broadly defines personal information and gives California residents expanded privacy rights and protections, such as affording them the right to access and request deletion of their information and to opt out of certain sharing and sales of personal information. The CCPA provides for severe civil penalties and statutory damages for violations and a private right of action for certain data breaches that result in the loss of unencrypted personal information. Numerous other states also have enacted, or are in the process of enacting or considering, comprehensive

 

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state-level privacy and data protection laws, rules and regulations that share similarities with the CCPA, with at least four such laws (in Virginia, Colorado, Connecticut and Utah) having taken effect, or scheduled to take effect, in 2023. Additionally, laws in all 50 U.S. states require businesses to provide notice to residents whose personal information has been disclosed as a result of a data breach. Moreover, there is discussion in Congress of a new comprehensive federal privacy and data protection law to which we would become subject if it is enacted.

Moreover, we make public statements about our collection, use, disclosure and other processing of personal information through our privacy policies and information on our website. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policies and other statements that provide promises and assurances about privacy and data protection can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. Any concerns about our privacy and data protection practices, even if unfounded, could damage our reputation and adversely affect our business.

Although we monitor the regulatory environment and have invested in addressing new developments, we may be required to make additional changes to our services and business practices to enable us and our customers to comply with applicable laws, regulations, rules, standards and other obligations. Evolving regulatory and legal obligations may also increase our potential liability exposure through higher potential penalties for non-compliance. Laws, regulations, rules, standards and other obligations relating to privacy and data protection are subject to differing interpretations and may be inconsistent among jurisdictions, thereby making compliance with such obligations challenging. Revising our services and business practices to comply with these requirements could reduce demand for our services, require us to take on more onerous obligations in our contracts, or restrict our ability to store, transfer and otherwise process data or, in some cases, impact our ability or our customers’ ability to offer our services in certain locations, to deploy our products, to reach current and prospective customers, or to derive insights from customer data globally.

We cannot assure you that any third-party partners with access to our employees’ personally identifiable and other sensitive or confidential information in relation to which we are responsible will not breach contractual obligations imposed by us, or that they will not experience data security breaches or attempts thereof, which could have a corresponding effect on our business, including putting us in breach of our obligations under privacy and data protection laws, regulations, rules, standards and other obligations, which could in turn adversely affect our business, results of operations and financial condition. We cannot assure you that our contractual measures and our own privacy and data protection-related safeguards will protect us from the risks associated with the third-party processing, storage and transmission of such information. Increasing use of social media could also give rise to liability, breaches of data security or reputational damage.

Our failure or perceived failure to comply with any applicable privacy or data protection laws, regulations, rules, standards or other obligations could result in increased costs for our products, monetary penalties, damage to our reputation, government and regulatory inquiries, investigations and enforcement actions, fines or legal action. Additionally, if our customers, third-party partners, vendors or developers violate applicable laws, regulations, rules or standards, or our policies or other privacy or security-related obligations, such violations may also put the information of our customers, suppliers, third-party partners or employees at risk and could in turn have an adverse effect on our business.

Furthermore, the uncertain and shifting regulatory environment and trust climate may cause concerns regarding privacy and data protection and may cause our customers or their customers to resist providing the data necessary to allow our customers to use our services effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our products or services and could limit adoption of our products. Any of the foregoing could have a material adverse effect on our business, results of operations, financial condition and prospects.

 

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We are subject to anti-corruption laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, results of operations and financial condition.

Our operations are subject to the U.K. Bribery Act 2010 (the “Bribery Act”), the U.S. Foreign Corrupt Practices Act (the “FCPA”), and other applicable anti-corruption laws in countries where we do business and may do business in the future. These anti-corruption laws generally prohibit us, our officers, our employees, affiliates, agents and intermediaries from offering or paying bribes, requesting or accepting bribes, or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. Under the Bribery Act, we may also be liable for failing to prevent a person associated with us from committing a bribery offense. We have operations in countries considered high risk for corruption, such as China and India, agreements and collaborations with third parties, interactions with government officials, and other business activities that could expose us to corruption risk. While we have compliance safeguards in place, it is possible that these safeguards prove insufficient, or that our employees, intermediaries, or other third-party business partners may engage in activities that subject us to liability under the Bribery Act, FCPA, or other anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. If we further expand our operations internationally, we will need to dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate.

There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA, or other legal requirements. If we are not in compliance with the Bribery Act, the FCPA and other anti-corruption laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. Any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or trade control laws by U.K., U.S. or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.

We are subject to risks related to government contracts and related procurement regulations.

A small portion of our revenue is derived from contracts with governmental entities, governmental subcontractors and public universities. Our contracts with such entities, including in the U.K., the European Union and the U.S., are subject to various regulations and other requirements relating to their formation, administration and performance. We may be subject to audits and investigations relating to government contracts, and any violations could result in various civil and criminal penalties and administrative sanctions, including termination of the contract, payment of fines or suspension or debarment from future government business. If we were to lose a significant number of government contracts, it would have an adverse impact on our results of operations.

Our employees, independent contractors, consultants and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading laws, which could cause significant liability for us and harm our reputation.

We are exposed to the risk of fraud or other misconduct by our employees, independent contractors, consultants and vendors. Misconduct by these partners could include intentional failures to comply with laws, standards, regulations, guidance or codes of conduct, provide accurate information to regulatory authorities, comply with manufacturing standards, report financial information or data accurately or disclose unauthorized activities to us. We may also be exposed to risks in connection with any insider trading violations by employees or others affiliated with us. It is not always possible to identify and deter employee misconduct, and the

 

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precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws, standards, regulations, guidance or codes of conduct. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations and prospects, including the imposition of significant fines or other sanctions and damage to our reputation.

Risks Relating to Our Status as a Controlled Company and Foreign Private Issuer

We will be a “controlled company” within the meaning of the Nasdaq corporate governance rules and, as a result, be eligible to rely on exemptions from certain corporate governance requirements that provide protection to stockholders of companies that are not controlled companies.

Immediately after the completion of this offering, SoftBank Group is expected to beneficially own approximately 90.6% of our outstanding ordinary shares (or 89.9% if the underwriters exercise in full their option to purchase additional ADSs from the selling shareholder) and thus a majority of the total voting power of our ordinary shares. As a result of SoftBank Group’s ownership, after the completion of this offering, we will be a “controlled company” under the Nasdaq corporate governance standards.

Because we will qualify to be treated as a controlled company, we will have the option not to comply with certain requirements to which companies that are not controlled companies are subject, including the requirement that a majority of the Board of Directors consists of independent directors, the requirement that a majority of the independent directors select or recommend its director nominees, the requirement that the remuneration committee be responsible for determining or recommending the compensation of executive officers other than our Chief Executive Officer and the requirement that its remuneration committee be composed entirely of independent directors. Since we have elected to use certain of the controlled company exemptions, holders of our ADSs will not have the same protections afforded to stockholders of companies that are subject to these corporate governance requirements.

As long as SoftBank Group controls us and/or is entitled to certain rights under the Shareholder Governance Agreement, other holders of our ordinary shares and ADSs will have limited ability to influence matters requiring shareholder approval or the composition of our Board of Directors.

Immediately after the completion of this offering, SoftBank Group is expected to beneficially own approximately 90.6% of our total issued and outstanding share capital (or 89.9% if the underwriters exercise in full their option to purchase additional ADSs from the selling shareholder). As a result, for so long as SoftBank Group and its controlled affiliates hold shares representing a majority of the votes entitled to be cast by the holders of our outstanding ordinary shares at a shareholder meeting, SoftBank Group will generally have the ability to control the outcome of any matter submitted for the vote of our shareholders, except in certain limited circumstances as set forth in the Articles and the Companies Act.

In addition, so long as SoftBank Group and its controlled affiliates hold ordinary shares representing at least a majority of the votes entitled to be cast by the holders of our ordinary shares at a shareholder meeting, SoftBank Group will have the ability to control the election of all of the members of our Board of Directors. The directors elected by SoftBank Group will have the authority to make important decisions regarding our business, including decisions affecting our capital structure, such as the issuance of equity, the incurrence of indebtedness, the implementation of stock repurchase programs and the declaration of dividends.

Pursuant to the shareholder governance agreement we will enter into with SoftBank Group upon the completion of this offering (the “Shareholder Governance Agreement”), SoftBank Group will have the right to designate a number of candidates for election to our Board of Directors depending on its and its controlled affiliates’ level of ownership of our outstanding ordinary shares. SoftBank Group’s designation rights will range from the ability to designate seven candidates so long as they own more than 70% of our outstanding ordinary

 

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shares down to the ability to designate one candidate so long as they own more than 5% of our outstanding ordinary shares. Additionally, effective upon completion of this offering and for so long as SoftBank Group and its controlled affiliates own more than 70% of our outstanding ordinary shares, SoftBank Group will have the right to increase the size of our Board of Directors to nine directors and appoint a director, who need not be independent, to the board to fill the newly created vacancy. If such right is exercised, SoftBank Group will have the right to nominate up to eight candidates for election to our Board of Directors for as long as it and its controlled affiliates hold more than 70% of our outstanding ordinary shares. The Shareholder Governance Agreement also gives SoftBank Group certain rights with respect to committees of our Board of Directors, approvals of related party transactions, pre-emptive rights, registration rights, information and other rights, consultation rights and a consent right, among others, including during periods in which SoftBank Group beneficially owns less than a majority of our outstanding ordinary shares. Accordingly, SoftBank Group will maintain significant control over our corporate and business activities until such rights terminate. See “Related Party Transactions—Transactions with SoftBank Group—Shareholder Governance Agreement—Rights Relating to Our Board of Directors.”

SoftBank Group’s interests may conflict with our own interests and those of holders of our ADSs.

The interests of SoftBank Group may not coincide with our own interests or the interests of holders of our ADSs. Because SoftBank Group will generally have the ability, subject to limitations in the Articles and the Companies Act, to control all matters submitted to our shareholders for approval, including the election of all of the members of our Board of Directors, and will have certain enhanced rights pursuant to the Shareholder Governance Agreement, other shareholders will have limited ability to influence corporate matters. As a result, SoftBank Group may cause us to take corporate actions, including engaging in transactions with SoftBank Group or affiliates of SoftBank Group, that members of our management or other shareholders do not view as beneficial, or that provide SoftBank Group with benefits at our expense. Such actions could have a material and adverse effect on our business, results of operations and the trading price of our ADSs.

From time to time we have, and in the future we expect to, advise SoftBank Group with respect to certain of its proposed investments or acquisitions in, or commercial arrangements or strategic partnerships with, businesses in or adjacent to our industry. For example, we are a party to a consulting agreement with SoftBank Group pursuant to which we provide to SoftBank Group and its affiliates certain technical consultancy and advisory services relating to potential transactions, strategic partnerships, commercial arrangements or other arrangements involving SoftBank Group or its affiliates. See “Related Party Transactions—Transactions with SoftBank Group—Consulting Agreement.” Our efforts to advise SoftBank Group may require substantial time and attention from our executives, engineers and other employees, which could divert attention and resources away from our business. We can provide no assurances that SoftBank Group will not acquire, invest in or partner with businesses that compete with us, and we will have no control over SoftBank Group’s acquisition, investment or strategic partnership activities, including any investments in, acquisitions of or strategic partnerships with businesses that compete with us or our customers, or any other actions that SoftBank Group may take to compete with us or our customers. Any SoftBank Group investments in, or acquisitions of, or strategic partnerships with, businesses that compete with us or our customers could have a material adverse effect on us and our relationships with affected customers and cause those customers to seek alternatives to our products and invest in the ecosystems of our competitors like RISC-V, which could have a material adverse effect on our business, results of operations, reputation, financial condition and/or prospects. In connection with the performance of services under the consulting agreement or otherwise, we may enter into strategic partnerships, licensing agreements or other commercial arrangements involving businesses or other assets owned by SoftBank Group or its affiliates, business or assets in which SoftBank Group or its affiliates have a controlling interest, or businesses with which SoftBank Group or its affiliates have a commercial arrangement or partnership. In addition, although we are not actively pursuing any investments in, or acquisitions of any such businesses, we may in the future pursue acquisitions of or investments in entities affiliated with SoftBank Group or with whom SoftBank Group or its affiliates have a commercial relationship.

 

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Disputes may arise between us and SoftBank Group or its affiliates in a number of areas, including relating to arrangements with third parties that are exclusionary to us or SoftBank Group or its affiliates and business opportunities that may be attractive to both us and SoftBank Group or its affiliates. Furthermore, disputes may arise between us and SoftBank Group or its affiliates with respect to Arm China. As of the date hereof, approximately 48% of the equity interest in Arm China is owned by Acetone Limited, which SoftBank Group controls and in which we own a 10% non-voting interest (representing an approximate 4.8% indirect interest). We may not be able to resolve any potential conflicts with SoftBank Group and, even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party, which could have an adverse effect on our business, results of operations and the trading price of our ADSs. In addition, any disputes between us and SoftBank Group could distract our management.

In addition, some of our directors and officers currently, and in the future may, directly or indirectly own equity interests in SoftBank Group, and Mr. Son is also the Chairman and Chief Executive Officer of SoftBank Group and Mr. Haas is a director of SoftBank Group. In addition, Mr. Haas is party to an agreement pursuant to which he provides certain advisory and consulting services to SoftBank Group. Ownership of such equity interests by our directors and officers and the presence of Messrs. Son and Haas, as the chair of our Board of Directors and our Chief Executive Officer and a director, respectively, could create, or appear to create, conflicts of interest with respect to matters involving both us and any one of them, or involving us and SoftBank Group. Provisions of the Articles address corporate opportunities that are presented to our directors that are also directors or officers of SoftBank Group. We cannot assure you that the Articles will adequately address potential conflicts of interest or that potential conflicts of interest will be resolved in our favor or that we will be able to take advantage of corporate opportunities presented to individuals who are directors of both us and SoftBank Group. As a result, we may be precluded from pursuing certain advantageous transactions or growth initiatives.

Moreover, under the terms of the Shareholder Governance Agreement to be entered into with SoftBank Group upon the completion of this offering, SoftBank Group has a contractual pre-emptive right. Specifically, under the terms of the Shareholder Governance Agreement, if we propose to allot or issue any ordinary or preferred shares or options, warrants or other securities convertible into or exercisable for ordinary or preferred shares (including ADSs) (other than: (i) pursuant to an offer made to all ordinary shareholders on the same terms; or (ii) in connection with any incentive plan or share scheme otherwise approved by SoftBank Group to the extent such approval is required under the Shareholder Governance Agreement), SoftBank Group will be entitled (but will not be obligated) to purchase up to an amount of the securities we propose to allot or issue such that it can maintain its proportional legal and economic interests in our share capital prior to such allotment or issuance. As a result, while other holders of our ADSs would risk suffering a reduction in percentage ownership in connection with a new issuance of securities by us, SoftBank Group and its controlled affiliates will have the opportunity to avoid a reduction in their legal and economic interests. See “Related Party Transactions—Transactions with SoftBank Group—Shareholder Governance Agreement—Pre-emptive Rights.”

Furthermore, regardless of the performance of our own business, SoftBank Group’s business, results of operations and the trading price of SoftBank Group’s securities or other matters affecting SoftBank Group or actions that SoftBank Group may take may adversely affect the trading price of our ADSs. In addition, SoftBank Group is not restricted from competing with us or otherwise taking for itself or its other affiliates certain corporate opportunities that may be attractive to us.

SoftBank Group’s ability to control all matters submitted to our shareholders may have the effect of delaying, preventing or deterring a change of control, which could deprive holders of our ADSs of an opportunity to receive a premium for their ADSs as part of a change of control, and might ultimately affect the fair market value of our ADSs.

SoftBank Group has engaged, and may in the future engage, in financing transactions whereby our shares are pledged as security.

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may be unable to influence the timing or terms of financing transactions by SoftBank Group involving our securities. For example, certain subsidiaries of SoftBank Group are parties to a term loan facility described further under “Certain Relationships and Related Party Transactions” pursuant to which we have certain obligations. SoftBank Group has informed us that (i) it intends to repay the term loan facility prior to, or substantially concurrently with, the pricing of this offering, and (ii) at the time of such repayment, our springing guarantee and indemnity will be terminated. The repayment of the term loan facility and the release of our obligations thereunder is a condition to the closing of this offering. If SoftBank Group does not repay this facility, this offering will not close.

In addition, certain subsidiaries of SoftBank Group have entered into a margin loan facility, with certain of the underwriters or their affiliates being agents and/or lenders (which include Barclays Capital Inc., BNP Paribas Securities Corp., Citigroup Global Markets Inc., Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, HSBC Securities (USA) Inc., J.P. Morgan Securities LLC, Mizuho Securities USA LLC, MUFG Securities Americas Inc., Natixis Securities Americas LLC, Santander US Capital Markets LLC and SMBC Nikko Securities America, Inc. or their affiliates), to be secured by our outstanding ordinary shares and to be funded following, or substantially concurrently with, the closing of this offering, but in any event after the Existing SoftBank Group Facility is repaid (the “New SoftBank Group Facility”). We have no material obligations with respect to the New SoftBank Group Facility. The New SoftBank Group Facility will initially be secured by a pledge of 769,029,000 of our ordinary shares representing a 75.01% equity interest in us (before giving effect to the issuance of ordinary shares issuable upon the completion of this offering in connection with the vesting of RSUs and Executive Awards) pursuant to certain exceptions to the lock-up agreements. See “Ordinary Shares and ADSs Eligible for Future Sale—Lock-up Agreements.” We face various risks in connection with such transactions. The New SoftBank Group Facility contains, and such other financing transactions may contain, provisions that, subject to their terms, require prepayment if certain events or circumstances occur, including certain change of control transactions or in the event the trading price of our ADSs declines below certain thresholds. From time to time, subject to certain requirements under the terms of the New SoftBank Group Facility and any other such financing transactions, SoftBank Group or the relevant subsidiary of SoftBank Group, as applicable, may consider it advisable to sell shares in order to finance the prepayment or repayment of such financings, which number of shares may, individually or in the aggregate, be significant. In addition, in connection with the New SoftBank Group Facility and any other such financings, if the price of our ADSs declines to certain levels, absent a repayment of the applicable financing, SoftBank Group may be required to provide additional collateral. For instance, the New SoftBank Group Facility could be subject to a “margin call” by the providers of the facility if, among other events, the loan-to-value (LTV) exceeds a certain threshold. In the event of such a margin call, the relevant subsidiary of SoftBank Group would need to deposit additional funds with the providers of the facility and may decide to sell some of the pledged shares to provide such funds. In the case of non-payment at maturity or another event of default, the providers of the New SoftBank Group Facility and any other such financing may, in addition to other remedies, exercise their rights to foreclose on and sell or cause the sale of our shares that may be pledged as collateral. The foreclosure on our shares that are initially pledged as collateral for the New SoftBank Group Facility could cause a change of control of us and if such shares are sold, such sales could cause the trading price of our ADSs to decline. Sales of our securities in connection with the New SoftBank Group Facility and any other such financing transactions, whether by SoftBank Group or upon enforcement against collateral, could have a material and adverse effect on our business, results of operations, access to equity capital and the trading price of our ADSs.

If SoftBank Group sells a controlling equity interest in our company to a third party in a private transaction, you may not realize any change-of-control premium on your ADSs and we may become subject to the control of a currently unknown third party.

For so long as the U.K. City Code on Takeovers and Mergers (the “Takeover Code”) does not apply to us, SoftBank Group will have the ability, should it choose to do so, to sell some or all of its shares in a privately negotiated transaction, which, if sufficient in size, could result in a change of control of us. The ability of SoftBank Group to privately sell its shares, with no requirement for a concurrent offer to be made to acquire all

 

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of the ADSs that will be publicly traded following the completion of this offering, could prevent you from realizing any change-of-control premium on your ADSs that may otherwise accrue to SoftBank Group on its private sale of shares. In addition, if SoftBank Group privately sells its controlling equity interest or if a lender forecloses on a controlling interest pledged by SoftBank Group, including in connection with enforcement under the New SoftBank Group Facility, we may become subject to the control of a currently unknown third party. The interests of this third party may not be the same as, or may conflict with, the interests of our other shareholders. Furthermore, if SoftBank Group sells a controlling equity interest in our company to a third party or a lender forecloses on a pledged controlling equity interest in our company, our future indebtedness may be subject to acceleration, and our other commercial agreements and relationships, including any remaining agreements with SoftBank Group, could be impacted. The occurrence of any of these events could adversely affect our business, results of operations, financial condition and prospects.

SoftBank Group’s ability to control our Board of Directors may make it difficult for us to recruit independent directors.

For so long as SoftBank Group and its controlled affiliates hold our ordinary shares representing at least a majority of the votes entitled to be cast by the holders of our ordinary shares at a shareholder meeting, SoftBank Group will be able to elect all of the members of our Board of Directors. Additionally, pursuant to the Shareholder Governance Agreement, SoftBank Group will have the right to designate a number of candidates for election to our Board of Directors depending on its and its affiliates’ level of ownership of our outstanding ordinary shares. SoftBank Group’s designation rights will range from the ability to designate seven candidates so long as they own more than 70% of our outstanding ordinary shares (or up to eight if SoftBank Group exercises the right granted to it to increase the size of our Board of Directors and appoint an additional non-independent director to fill the resulting vacancy) down to the ability to designate one candidate so long as they own more than 5% of our outstanding ordinary shares. The Shareholder Governance Agreement also provides SoftBank Group with proportional rights to representation on the committees of our Board of Directors, subject to applicable restrictions. See “Related Party Transactions—Transactions with SoftBank Group—Shareholder Governance Agreement—Rights Relating to Our Board of Directors.” Under these circumstances, qualified and experienced persons who might otherwise accept an invitation to join our Board of Directors may decline, which means that we would not be able to benefit from their qualifications and expertise in service as members of our Board of Directors.

As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than U.S. public companies.

We are a “foreign private issuer,” as defined in the SEC rules and regulations, and, consequently, we are not subject to all the disclosure requirements applicable to companies organized within the U.S. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies.

As a foreign private issuer, we will file an annual report on Form 20-F within four months of the close of each fiscal year ended March 31 and reports on Form 6-K relating to certain material events promptly after we publicly announce these events. However, because of the above exemptions for foreign private issuers, our shareholders will not be afforded the same protections or information generally available to investors holding shares in public companies organized in the U.S.

 

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While we are a foreign private issuer, we may opt out of certain Nasdaq corporate governance rules applicable to public companies organized in the U.S.

We are entitled to rely on a provision in Nasdaq’s corporate governance rules that allows us to follow English corporate law with regard to certain aspects of corporate governance. This allows us to follow certain corporate governance practices that differ in significant respects from the corporate governance requirements applicable to domestic issuers listed on Nasdaq, which may provide less protection to our shareholders than what is accorded to investors under the Nasdaq rules applicable to domestic issuers.

For example, we are exempt from Nasdaq regulations that require a listed U.S. company to:

 

   

disclose within four business days of any determination to grant a waiver of the Code of Conduct to directors and officers;

 

   

obtain shareholder approval for certain issuances of securities, including shareholder approval of share option plans;

 

   

give the audit committee review and oversight responsibilities over all “related party transactions”;

 

   

hold regularly scheduled meetings of only the independent directors at least twice a year;

 

   

solicit proxies and provide proxy statements for all meetings of shareholders; and

 

   

provide in the company’s bylaws or articles of association that a quorum for the shareholders’ meeting consists of at least 33 1/3% of the outstanding shares of the company’s voting common shares.

In accordance with Nasdaq listing rules, our audit committee is required to comply with the provisions of Section 301 of the Sarbanes-Oxley Act and Rule 10A-3 of the Exchange Act, both of which are also applicable to Nasdaq-listed U.S. companies. Because we are a foreign private issuer, however, our audit committee is not subject to additional requirements applicable to Nasdaq-listed U.S. companies, including an affirmative determination that all members of the audit committee are “independent,” using more stringent criteria than those applicable to us as a foreign private issuer, subject to certain phase-in requirements permitted by Rule 10A-3 of the Exchange Act. See “Management and Executive Remuneration—Foreign Private Issuer Exemption.”

We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

We are required to test our foreign private issuer status at the end of our second fiscal quarter in each fiscal year after the completion of this offering. If we were no longer a foreign private issuer, we would be required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers as of April 1, 2025. In order to maintain our current status as a foreign private issuer, either (a) a majority of our securities must be either directly or indirectly owned of record by nonresidents of the U.S. or (b)(i) a majority of our executive officers or directors cannot be U.S. citizens or residents, (ii) more than 50% of our assets must be located outside the U.S. and (iii) our business must be administered principally outside the U.S. If SoftBank Group or its affiliates do not continue to hold a majority of our ordinary shares, we would likely fail to maintain our status as foreign private issuer. If we lose our status as a foreign private issuer, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and is likely to make some activities highly time-consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our Board of Directors.

 

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The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

We are incorporated under the laws of England and Wales. The rights of holders of ordinary shares and, therefore, certain of the rights of holders of ADSs, are governed by English law, including the provisions of the Companies Act and by the Articles. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations. See “Description of Share Capital and Articles of Association—Differences in Corporate Law” in this prospectus for a description of the principal differences between the provisions of the Companies Act applicable to us and, for example, the Delaware General Corporation Law relating to shareholders’ rights and protections. The principal differences include the following:

 

   

under English law, subject to certain exceptions and disapplications, each shareholder generally has preemptive rights to subscribe on a proportionate basis to any issuance of ordinary shares or rights to subscribe for, or to convert securities into, ordinary shares for cash. Under U.S. law, shareholders generally do not have preemptive rights unless specifically granted in the certificate of incorporation or otherwise;

 

   

under English law, certain matters require the approval of not less than 75% of the shareholders who vote (in person or by proxy) on the relevant resolution (or on a poll of shareholders, by shareholders representing not less than 75% of the ordinary shares voting (in person or by proxy)), including amendments to the Articles. This may make it more difficult for us to complete corporate actions deemed advisable by our Board of Directors. Under U.S. law, generally only majority shareholder approval is required to amend the certificate of incorporation or to approve other significant transactions;

 

   

in the U.K., takeovers may be structured as takeover offers or as schemes of arrangement. Under English law, a bidder seeking to acquire us by means of a takeover offer would need to make an offer for all of our outstanding ordinary shares and ADSs. If acceptances are not received for 90% or more of the ordinary shares and ADSs under the offer, under English law, the bidder cannot complete a “squeeze out” to obtain 100% control of us. Accordingly, acceptances of 90% of our outstanding ordinary shares/ADSs would likely be a condition in any takeover offer to acquire us, not 50% as is more common in tender offers for corporations organized under U.S. law. By contrast, a scheme of arrangement, the successful completion of which would result in a bidder obtaining 100% control of us, requires the approval of a majority in number of the shareholders or class of shareholders present and voting either in person or by proxy at the meeting and representing 75% in value of the ordinary shares (including those represented by ADSs) voting at the meeting for approval;

 

   

under English law and the Articles, shareholders and other persons whom we know or have reasonable cause to believe are, or have been, interested in our shares may be required to disclose information regarding their interests in our shares upon our request, and the failure to provide the required information could result in the loss or restriction of rights attaching to the shares, including prohibitions on certain transfers of the shares, withholding of dividends and loss of voting rights. Comparable provisions generally do not exist under U.S. law; and

 

   

under the Articles, the quorum requirement for a shareholder meeting is a minimum of one shareholder present in person or by proxy (or, if a corporation, by representative). Under U.S. law, a majority of the shares eligible to vote must generally be present (in person or by proxy) at a shareholders’ meeting in order to constitute a quorum. The minimum number of shares required for a quorum can be reduced pursuant to a provision in a company’s certificate of incorporation or bylaws, but typically not below one-third of the shares entitled to vote at the meeting.

As an English public limited company, certain capital structure decisions will require shareholder approval, which may limit our flexibility to manage our capital structure.

On September 1, 2023, the Company re-registered as a public limited company with the name Arm Holdings plc. English law provides that, subject to certain exceptions (including the allotment, or the grant of

 

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rights to subscribe for or convert any security into shares, in pursuance of an employees’ share scheme), a board of directors of a public limited company may only allot shares (or grant rights to subscribe for or convert any security into shares) with the prior authorization of shareholders, such authorization stating the aggregate nominal amount of shares that it covers and being valid for a maximum period of five years, each as specified in the articles of association or relevant ordinary shareholder resolution passed by shareholders at a general meeting. We have obtained authority from our shareholders to allot 1,025,234,000 additional shares ending August 25, 2028, which authorization will need to be renewed upon expiration (i.e., at least every five years) but may be sought more frequently for additional five-year terms (or for any shorter period).

English law also generally provides shareholders with preemptive rights when new shares are issued for cash, except that such rights do not apply to the allotment of equity securities that would, apart from any renunciation or assignment of the right to their allotment, be held under or allotted or transferred pursuant to an employees’ share scheme. However, it is possible for the articles of association, or for shareholders to pass a special resolution at a general meeting, being a resolution passed by at least 75% of the votes cast, to disapply preemptive rights. Such a disapplication of preemptive rights may be for a maximum period of up to five years from the date of adoption of the articles of association, if the disapplication is contained in the articles of association, or from the date of the shareholder special resolution, if the disapplication is by shareholder special resolution, but not longer than the duration of the authority to allot shares to which the disapplication relates. In either case, this disapplication would need to be renewed by our shareholders upon its expiration (i.e., at least every five years). We have obtained authority from our shareholders to disapply preemptive rights ending August 25, 2028, which disapplication will need to be renewed upon expiration (i.e., at least every five years), but may be sought more frequently for additional five-year terms (or for any shorter period).

English law also generally prohibits a public company from repurchasing its own shares without the prior approval of shareholders by ordinary resolution, being a resolution passed by a simple majority of votes cast, and other formalities. Such approval may be for a maximum period of up to five years. See “Description of Share Capital and Articles of Association.”

Under current law, transfers of ordinary shares outside the ADR program and the redeposit of ordinary shares into the ADR program will generally be subject to U.K. stamp duty or stamp duty reserve tax and the law may change to cover other transactions, including transactions in ADSs, which would increase the cost of dealing in ordinary shares or ADSs.

On completion of this offering, it is anticipated that the ADSs will be transferred to a nominee for The Depository Trust Company (“DTC”) and corresponding book-entry interests credited in the facilities of DTC. On the basis of current law and HM Revenue & Customs (“HMRC”) practice, no charges to U.K. stamp duty or stamp duty reserve tax (“SDRT”) are expected to arise on either the transfer of ADSs into DTC’s facilities or on subsequent transfers of book-entry interests in ADSs entirely within DTC’s facilities. Similarly, on the basis of current law and HMRC practice, a transfer of title in the ADSs from within the DTC clearance system to a purchaser out of the DTC clearance system and any subsequent transfers that occur entirely outside the DTC clearance system should not attract a charge to U.K. stamp duty or SDRT.

If you choose to withdraw the ordinary shares underlying your ADSs (in accordance with the deposit agreement, applicable laws and regulations) from the depositary, U.K. stamp duty and SDRT will not generally be chargeable on any such withdrawal in your favor, but will generally be chargeable on any subsequent transfers of the ordinary shares or redeposits of the ordinary shares into the ADR program (at the rates specified below). Therefore, you are strongly encouraged to hold your ADSs (representing ordinary shares) in book-entry form through the facilities of DTC.

In connection with the completion of this offering, we expect to put in place arrangements to require that ordinary shares held in certificated form or otherwise outside the depositary system cannot be represented by ADSs within the DTC clearance system until the transferor of the ordinary shares has first delivered the ordinary shares to a depositary specified by us so that any U.K. stamp duty (or SDRT) may be collected in connection

 

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with the delivery to the depositary. Any such ADSs in respect of those ordinary shares so deposited may be evidenced by a receipt issued by the depositary. Before the transfer can be registered in the books of the depositary for the ADSs to be issued, the transferor will also be required to put funds in the depositary to settle any resultant liability to stamp duty (or SDRT), which will be charged at a rate of 1.5% of the value of the ADSs. We have received confirmation from HMRC that, in respect of the transactions contemplated by, and put in place as part of, this offering, no charge to U.K. stamp duty or SDRT should arise.

We cannot assure you that the current legislation and/or HMRC guidance will not change. In particular, certain rights derived from European Union law currently recognized in U.K. domestic law will cease to be so following December 31, 2023 as a result of the Retained EU Law (Revocation and Reform) Act 2023, absent the exercise of a regulation-making power to restate or reproduce specific rights in U.K. domestic law. Rights derived from European Union law, of this type, would therefore cease to restrict the application of the rules providing for the 1.5% U.K. stamp duty or SDRT charge. There has been no indication that these European Union law rights will be restated or reproduced in U.K. domestic law before December 31, 2023. Accordingly, future issues or transfers of our ordinary shares to, or appropriations of our ordinary shares by, depositary receipt systems after December 31, 2023 may be subject to 1.5% U.K. stamp duty or SDRT. The HMRC confirmation referred to above does not extend to such future transactions.

It is also possible that, for example, in the future, a transfer of title in the ADSs from within the DTC clearance system to a purchaser out of the DTC clearance system and/or any subsequent transfers of ADSs that occur entirely outside (or inside) the DTC clearance system, will attract a charge to U.K. stamp duty or SDRT. Any such U.K. stamp duty or SDRT will be chargeable at a rate of 0.5% (or potentially 1.5% in certain circumstances) of any consideration, which is normally payable by the transferee. Any such duty must be paid (and the relevant transfer document, if any, stamped by HMRC) before the transfer can be registered in the books of the depositary and, if relevant, ADSs issued to a nominee for DTC and corresponding book-entry interests credited in the facilities of DTC.

For further information about the U.K. stamp duty and SDRT implications of holding ADSs and withdrawing ordinary shares under current law, please see the section titled “Material Tax Considerations—U.K. Taxation” of this prospectus.

The Articles will provide that, unless the Company by ordinary resolution consents to the selection of an alternative forum, the courts of England and Wales will be the exclusive forum for the resolution of all shareholder complaints other than complaints asserting a cause of action arising under the Securities Act and the Exchange Act, and that the U.S. District Court for the Northern District of California will be the exclusive forum for the resolution of any shareholder complaint asserting a cause of action arising under the Securities Act or the Exchange Act.

The Articles will provide that, unless the Company by ordinary resolution consents to the selection of an alternative forum, the courts of England and Wales will be the exclusive forum for resolving all shareholder complaints other than shareholder complaints asserting a cause of action arising under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, and that the U.S. District Court for the Northern District of California will be the exclusive forum for resolving any shareholder complaint asserting a cause of action arising under the Securities Act or the Exchange Act, including applicable claims arising out of this offering. In addition, the Articles will provide that any person or entity purchasing or otherwise acquiring any interest in our shares is deemed to have notice of and consented to these provisions.

This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits. The enforceability of similar exclusive forum provisions (including exclusive federal forum provisions for actions, suits or proceedings asserting a cause of action arising under the Securities Act) in other companies’ organizational documents has been challenged in legal proceedings, and there is uncertainty as to whether courts

 

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would enforce the exclusive forum provisions in the Articles. Additionally, our shareholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. If a court were to find either choice of forum provision contained in the Articles to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our results of operations and financial condition. The courts of England and Wales and the U.S. District Court for the Northern District of California may also reach different judgments or results than would other courts, including courts where a shareholder considering bringing a claim may be located or would otherwise choose to bring the claim, and such judgments may be more or less favorable to us than our shareholders.

Shareholder protections found in provisions under the Takeover Code will not apply if our place of central management and control remains outside the U.K.

The Takeover Code applies to all offers for companies which have their registered office in the U.K., the Channel Islands or the Isle of Man if any of their equity share capital or other transferable securities carrying voting rights are admitted to trading on a U.K. regulated market or a U.K. multilateral trading facility or on any stock exchange in the Channel Islands or the Isle of Man.

The Takeover Code also applies to all offers for public companies which have their registered office in the U.K., the Channel Islands or the Isle of Man if they are considered by the Panel on Takeovers and Mergers (the “Takeover Panel”) to have their place of central management and control in the U.K., the Channel Islands or the Isle of Man. This is known as the “residency test.” In determining whether the residency test is satisfied, the Takeover Panel has regard primarily to whether a majority of a company’s directors are resident in these jurisdictions.

Although our registered office is in the U.K., the Takeover Code does not currently apply to us because our shares are not admitted to trading on a regulated market or multilateral trading facility in the U.K. or any stock exchange in the Channel Islands or the Isle of Man, and the Takeover Panel has confirmed to us that, on the basis of the current residency of our directors as at the date of this prospectus, we will not have our place of central management and control in the U.K., the Channel Islands or the Isle of Man.

As a result, our shareholders are not currently entitled to the benefit of certain takeover offer protections provided under the Takeover Code, including the rules regarding mandatory takeover bids and, therefore, holders of ADSs will not benefit from these protections.

In the event that this changes, or if the interpretation and application of the Takeover Code by the Takeover Panel changes (including changes to the way in which the Takeover Panel assesses the application of the Takeover Code to English companies whose shares are listed outside of the U.K., the Channel Islands or the Isle of Man), the Takeover Code may apply to us in the future.

The Takeover Code provides a framework within which takeovers of companies are regulated and conducted. The following is a brief summary of some of the most important rules of the Takeover Code:

 

   

In connection with a potential offer, if following an approach by or on behalf of a potential bidder, the company is “the subject of rumor or speculation” or there is an “untoward movement” in the company’s share price, there is a requirement for the potential bidder to make a public announcement about a potential offer for the company, or for the company to make a public announcement about its receipt of a potential offer.

 

   

When a person (a) acquires, whether by a series of transactions over a period of time or not, interests in shares carrying 30% or more of the voting rights of a company when taken together with shares in which persons acting in concert with that person are interested (which percentage is treated by the Takeover Code as the level at which effective control is obtained), or (b) acquires an interest in any other shares which increases the percentage of shares carrying voting rights in which they are interested

 

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when they are, together with persons acting in concert with them, already interested in shares which carry not less than 30% of the voting rights but do not hold shares carrying more than 50% of such voting rights, they must make a cash offer to all other shareholders at the highest price paid by them or any person acting in concert with them in the twelve months before the offer was announced.

 

   

When interests in shares carrying 10% or more of the voting rights of a class have been acquired for cash by an offeror (i.e., a bidder) and any person acting in concert with it in the offer period (i.e., before the shares subject to the offer have been acquired) and the previous twelve months, the offer must be in cash or be accompanied by a cash alternative for all shareholders of that class at not less than the highest price paid by the offeror or any person acting in concert with it in that period. Further, if an offeror or any person acting in concert with it acquires for cash any interest in shares during the offer period, the offer for the shares must be in cash or accompanied by a cash alternative at a price at least equal to the highest price paid for such shares during the offer period.

 

   

If, after a firm offer announcement is made, the offeror or any person acting in concert with it acquires an interest in shares in an offeree company (i.e., a target) at a price higher than the value of the offer, the offer must be increased to not less than the highest price paid for the interest in shares so acquired.

 

   

The offeree company must appoint a competent independent adviser whose advice on the financial terms of the offer must be made known to all the shareholders, together with the opinion of the board of directors of the offeree company.

 

   

Favorable deals for selected shareholders are not permitted, except in certain circumstances where independent shareholder approval is given and the arrangements are regarded as fair and reasonable in the opinion of the financial adviser to the offeree.

 

   

All shareholders must be given the same information.

 

   

Those issuing takeover circulars must include statements taking responsibility for the contents thereof.

 

   

Profit forecasts, quantified financial benefits statements and asset valuations must be made to specified standards and must be reported on by professional advisers.

 

   

Misleading, inaccurate or unsubstantiated statements made in documents or to the media must be publicly corrected immediately.

 

   

Actions during the course of an offer by the offeree company, which might frustrate the offer are generally prohibited unless shareholders approve these plans. Frustrating actions would include, for example, lengthening the notice period for directors under their service contract or agreeing to sell off material parts of the target group.

 

   

Stringent requirements are laid down for the disclosure of dealings in relevant securities during an offer, including the prompt disclosure of positions and dealings in relevant securities by the parties to an offer and any person who is interested (directly or indirectly) in 1% or more of any class of relevant securities.

 

   

Employees of both the offeror and the offeree company and the trustees of the offeree company’s pension scheme must be informed about an offer. In addition, the offeree company’s employee representatives and pension scheme trustees have the right to have a separate opinion on the effects of the offer on employment appended to the offeree board of directors’ circular or published on a website.

Risks Relating to this Offering and Ownership of Our Securities

There has been no prior market for our ordinary shares or the ADSs and an active, liquid and orderly trading market may not develop for our ADSs or be sustained following this offering, which could harm the market price of our ADSs and make it difficult for you to sell your ADSs.

Prior to this offering, there was no public trading market for our ordinary shares or ADSs. Although our ADSs are expected to be listed on Nasdaq, an active trading market for our ADSs may never develop or be

 

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sustained following this offering. You may not be able to sell your ADSs quickly or at the then-current market price if trading in our ADSs is not active. The initial public offering price was determined by negotiations among the lead underwriters, the selling shareholder and us. Among the factors considered in determining the initial public offering price were our future prospects and the prospects of our industry in general, our revenue, net income and certain other financial and operating information in recent periods, and the market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. However, there can be no assurance that, following the completion of this offering, the ADSs will trade at a price equal to or greater than the public offering price.

The purchase price paid by SoftBank Group to acquire shares in Arm Limited from SoftBank Vision Fund may not be, and should not be treated as, indicative of the trading price of our ADSs following the completion of this offering.

In August 2023, a subsidiary of SoftBank Group acquired substantially all of SoftBank Vision Fund’s approximately 25% interest in Arm Limited at a purchase price of approximately $16.1 billion, with the associated payments to be made in installments over a two-year period. The purchase price for this transaction was established by reference to the terms of a prior contractual arrangement between the parties. Moreover, the transfer was part of a larger transaction that also involved transfers of certain other entities from SoftBank Vision Fund to SoftBank Group. The consideration for such transfers is not included in the purchase price paid for the shares of Arm Limited. In light of the foregoing, investors are cautioned that the purchase price paid in respect of the Arm Limited shares may not be indicative of, and is not intended to reflect, expectations regarding the trading price of our ADSs following the completion of this offering.

The future exercise of registration rights by SoftBank Group may materially and adversely affect the market price of the ADSs.

Pursuant to the Shareholder Governance Agreement, SoftBank Group and certain of its affiliates are entitled to certain registration rights pursuant to which they may demand that we register the resale of its ordinary shares or securities convertible into or exchangeable for ordinary shares (including ADSs) (“Registrable Securities”) and, under certain circumstances, will also have customary “piggyback” registration rights for its Registrable Securities in connection with certain registrations of securities by us. In addition, SoftBank Group or its relevant affiliates may require us to file and maintain an effective shelf registration statement under the Securities Act covering the resale of SoftBank Group’s Registrable Securities. The registration of the resale of these securities will facilitate the public sale by SoftBank Group of such securities without regard to any limitations on the volume of securities that SoftBank Group may sell. In light of SoftBank Group’s expected beneficial ownership of our ordinary shares after giving effect to this offering, the registration of the resale of a significant number of ADSs, or the perception that significant sales by SoftBank Group may occur, may have a material adverse effect on the market price of our ADSs.

Raising additional capital may cause dilution to our existing shareholders, restrict our operations or cause us to relinquish valuable rights.

We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances, and licensing arrangements. To the extent that we raise additional capital through the sale of equity, convertible debt securities or other equity-based derivative securities, your ownership interest will be diluted, and the terms of the securities may include liquidation or other preferences that may be senior to your rights as holder of ADSs. Any indebtedness we incur would result in increased payment obligations and could involve restrictive covenants, such as limitations on our ability to incur additional debt and other operating restrictions that could adversely impact our ability to conduct our business. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our shareholders. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our ADSs to decline and existing shareholders may not agree with our financing plans or the terms of such financings. If we raise additional funds through strategic partnerships,

 

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collaborations, and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our IP or products, or grant licenses on terms unfavorable to us.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to holders in the U.S. unless we register the offer and sale of the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to holders unless either both the rights and any related securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities, to endeavor to cause such a registration statement to be declared effective or to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in such a rights offerings and may experience dilution in your holdings.

The market price of our ADSs may be volatile, and you may not be able to resell your ADSs at or above the initial public offering price.

The market price of our ADSs following this offering could be volatile. The stock market in general, and the market for technology companies in particular, has experienced extreme volatility that has often been unrelated to the operating performance of particular companies, and the trading price of our ADSs may be volatile due to factors beyond our control. As a result of this volatility, you may not be able to sell your ADSs at or above the initial public offering price. The market price for our ADSs may be influenced by many factors, including, among others:

 

   

variations in our actual or anticipated annual or quarterly operating results or those of others in our industry;

 

   

results of operations that otherwise fail to meet the expectations of securities analysts and investors;

 

   

changes in earnings estimates or recommendations by securities analysts, or other changes in investor perceptions of the investment opportunity associated with our ordinary shares relative to other investment alternatives;

 

   

market conditions in the semiconductor industry;

 

   

publications, reports or other media exposure of our licensed products or those of others in our industry, or of our industry generally;

 

   

announcements by us or others in our industry, or by our or their respective suppliers, distributors or other business partners, regarding, among other things, significant contracts, price reductions, capital commitments or other business developments, the entry into or termination of strategic transactions or relationships, securities offerings or other financing initiatives, and public reaction thereto;

 

   

additions or departures of key management personnel;

 

   

significant lawsuits, including patent or shareholder litigation;

 

   

regulatory actions involving us or others in our industry, or actual or anticipated changes in applicable government regulations or enforcement thereof;

 

   

the development and sustainability of an active trading market for our ordinary shares;

 

   

sales, or anticipated sales, of large blocks of our ADSs;

 

   

general economic and securities market conditions; and

 

   

other factors discussed in this “Risk Factors” section and elsewhere in this prospectus.

 

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In addition, the Cornerstone Investors have, severally and not jointly, indicated an interest in purchasing up to an aggregate of $735 million of the ADSs offered in this offering at the initial public offering price and on the same terms and conditions as the other purchasers in this offering. Because these indications of interest are not binding agreements or commitments to purchase, any of the Cornerstone Investors may determine to purchase more, fewer, or no ADSs in this offering, or the underwriters may determine to sell more, fewer, or no ADSs to any of the Cornerstone Investors. If any of the Cornerstone Investors are allocated a portion or all of, or more than, the ADSs in which they have indicated an interest in purchasing in this offering, their election to purchase any such ADSs could reduce the available public float for our ADSs.

Broad market and industry factors may negatively affect the market price of our ADSs, regardless of our actual operating performance. Further, a decline in the financial markets and related factors beyond our control may cause the price of our ADSs to decline rapidly and unexpectedly. If the market price of our ADSs after the completion of this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and materially and adversely affect our business, financial condition, and results of operations.

The trading price of our ADSs may be influenced by reports published by industry and equity research analysts.

The trading market for our ADSs will be influenced by the research and reports that industry or equity research analysts publish about us or our business. As a newly public company, the analysts who publish information about our ADSs will have had relatively little experience with us, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. We will not have any control over the analysts’ content and opinions included in their reports. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, financial performance, ADS price or otherwise, our ADS price would likely decline. If one or more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause our ADS price or trading volume to decline and result in the loss of all or a part of your investment in us.

Substantial future sales of ADSs in the public market, or the perception that these sales could occur, could cause the price of the ADSs to decline.

If our existing shareholders sell, or indicate an intention to sell, substantial amounts of our ADSs in the public market after the lockup and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our ADSs could decline. Upon completion of this offering, we will have 1,026,078,866 ordinary shares outstanding. Of these shares, only the shares represented by ADSs sold in this offering by the selling shareholder, plus any shares represented by ADSs sold upon the exercise of the underwriters’ option to purchase additional ADSs, will be freely tradable without restriction in the public market immediately following this offering. In connection with this offering, each of our executive officers, all of our non-independent directors and the selling shareholder have agreed to be subject to a contractual lock-up with the underwriters, which will expire after the end of a lock-up period, described in the sections titled “Ordinary Shares and ADSs Eligible for Future Sale” and “Underwriting.” If, upon the expiration of the lock-up period, or under any enforcement pursuant to certain exceptions to the lock-up agreements, these shareholders sell substantial amounts of our ADSs in the public market or engage in financing transactions involving our ADSs or ordinary shares, or the market perceives that such transactions may occur, the market price of our ADSs and our ability to raise capital through an issue of equity securities in the future could be adversely affected. In addition, in the case of non-payment at maturity or another event of default, the providers of the New SoftBank Group Facility may exercise their rights to foreclose on and sell or cause the sale of our shares that may be pledged as collateral. If such shares are sold, then the market price of our ADSs could be adversely affected. In the future, SoftBank Group may transfer a portion of its holdings in us to one or more of its affiliates or

 

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affiliated investment funds. Such affiliates or affiliated investment funds may have different investment strategies and interests and may decide to sell their holdings to third parties even if SoftBank Group intends to continue to hold the remainder of its holdings.

The lock-up agreements contain important exceptions that govern their applicability, including, with respect to the selling shareholder, any action necessary or appropriate for the purposes of pledging, charging or granting any lien, mortgage or other security interest with respect to the ordinary shares to secure the New SoftBank Group Facility for the benefit of the lenders thereunder and any subsequent transfer pursuant to any foreclosure or enforcement of the security by the lenders; provided that any buyer upon such foreclosure or enforcement will be obligated to sign the lock-up agreement for the remaining term of the lock-up. See “Ordinary Shares and ADSs Eligible for Future Sale—Lock-up Agreements.” Moreover, the representatives of the underwriters may, in their sole discretion, permit our officers, directors and other shareholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

Holders of ADSs are not treated as holders of our ordinary shares.

By participating in this offering you will become a holder of ADSs with underlying ordinary shares in a company incorporated under the laws of England and Wales. Holders of ADSs are not treated as holders of our ordinary shares, unless they withdraw the ordinary shares underlying their ADSs in accordance with the deposit agreement and applicable laws and regulations. The depositary, the custodian or their nominee will be the holder of the ordinary shares underlying the ADSs. Holders of ADSs therefore do not have any rights as holders of our ordinary shares, other than the rights that they have pursuant to the deposit agreement. See “Description of American Depositary Shares.”

Holders of ADSs may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying ordinary shares.

ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason, subject to the right of ADS holders to cancel their ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary shares. In addition, ADS holders may not be able to cancel their ADSs and withdraw the underlying ordinary shares when they owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities. See “Description of American Depositary Shares.”

The depositary for our ADSs is entitled to charge holders fees for various services, including annual ADS service fees.

The depositary for our ADSs is entitled to charge ADS holders fees for various services, including for the issuance of ADSs upon deposit of ordinary shares, cancellation of ADSs, distributions of cash dividends or other cash distributions, distributions of ADSs pursuant to share dividends or other free share distributions, distributions of securities other than ADSs and annual ADS service fees. In the case of ADSs issued by the depositary into the DTC, the fees will be charged by the DTC participants to the account of the applicable beneficial owners of ADSs in accordance with the procedures and practices of the DTC participants as in effect at the time. See “—Risks Relating to Our Status as a Controlled Company and Foreign Private Issuer—Under current law, transfers of ordinary shares outside the ADR program and the redeposit of ordinary shares into the ADR program will generally be subject to U.K. stamp duty or stamp duty reserve tax and the law may change to cover other transactions, including transactions in ADSs, which would increase the cost of dealing in ordinary shares or ADSs.”

 

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You will not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.

Except as described in this prospectus and the deposit agreement, holders of the ADSs will not be able to exercise voting rights attaching to the ordinary shares represented by the ADSs. Under the terms of the deposit agreement, holders of the ADSs may instruct the depositary to vote the ordinary shares underlying their ADSs. Otherwise, holders of ADSs will not have a right to vote unless they withdraw the ordinary shares underlying their ADSs to vote them in person or by proxy in accordance with applicable laws and regulations and the Articles. Even so, ADS holders may not know about a meeting far enough in advance to withdraw those ordinary shares. If we ask for the instructions of holders of the ADSs, the depositary, upon timely notice from us, will notify ADS holders of the upcoming vote and arrange to deliver our voting materials to them. Upon our request, the depositary will mail to ADS holders a shareholder meeting notice that contains, among other things, a statement as to the manner in which voting instructions may be given to the depositary. We cannot guarantee that ADS holders will receive the voting materials in time to ensure that they can instruct the depositary to vote the ordinary shares underlying their ADSs. A shareholder is only entitled to participate in, and vote at, the meeting of shareholders, provided that it holds our ordinary shares as of the record date set for such meeting and otherwise complies with the Articles. In addition, the depositary’s liability to ADS holders for failing to execute voting instructions or for the manner of executing voting instructions is limited by the deposit agreement. As a result, holders of ADSs may not be able to exercise their right to give voting instructions or be able to vote in person or by proxy and they may not have any recourse against the depositary or us if the ordinary shares underlying their ADSs are not voted as they have requested or if such ordinary shares cannot be voted.

We are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such agreement, or to terminate the deposit agreement, without the prior consent of the ADS holders.

We are entitled to amend the deposit agreement and to change the rights of the ADS holders under the terms of such agreement, without the prior consent of the ADS holders. We and the depositary may agree to amend the deposit agreement in any way we decide is necessary or advantageous to us or to the depositary. Amendments may reflect, among other things, operational changes in the ADS program, legal developments affecting ADSs or changes in the terms of our business relationship with the depositary. In the event that the terms of an amendment are materially disadvantageous to ADS holders, ADS holders will only receive 30 days’ advance notice of the amendment, and no prior consent of the ADS holders is required under the deposit agreement. Furthermore, we may decide to direct the depositary to terminate the ADS facility at any time for any reason. For example, terminations may occur if we decide to list our ordinary shares on a non-U.S. securities exchange and determine not to continue to sponsor an ADS facility or when we become the subject of a takeover or a going-private transaction. If the ADS facility will terminate, ADS holders will receive at least 30 days’ prior notice, but no prior consent is required from them. Under the circumstances that we decide to make an amendment to the deposit agreement that is materially disadvantageous to ADS holders or terminate the deposit agreement, the ADS holders may choose to sell their ADSs or surrender their ADSs and become direct holders of the underlying ordinary shares, but will have no right to any compensation whatsoever.

ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, holders and beneficial owners of ADSs irrevocably waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to the ADSs, any ADRs or the deposit agreement.

If this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of

 

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that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the U.S. Supreme Court. However, it our understanding that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before agreeing to be a party to the deposit agreement.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing.

No condition, stipulation or provision of the deposit agreement or ADRs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

The deposit agreement expressly limits our and the depositary’s obligations and liabilities.

The deposit agreement expressly limits our obligations and liabilities as well as those of the depositary. See “Description of American Depositary Shares—Limitations on Obligations and Liabilities.” Such limitations include the following:

 

   

We and the depositary are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad faith.

 

   

The depositary disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the effect of any vote, provided it acts in good faith and without negligence and in accordance with the terms of the deposit agreement.

 

   

The depositary disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated with investing in ordinary shares, for the validity or worth of the ordinary shares, for any tax consequences that result from the ownership of ADSs, for the creditworthiness of any third party, for allowing any rights to lapse under the terms of the deposit agreement, for the timeliness of any of our notices or for our failure to give notice.

 

   

We and the depositary will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement.

 

   

We and the depositary disclaim any liability if we or the depositary are prevented or forbidden from or subject to any civil or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the deposit agreement, by reason of any provision, present or future of any law or regulation, or by reason of present or future provision of any provision of the Articles, or any provision of or governing the securities on deposit, or by reason of any act of God or war or other circumstances beyond our control.

 

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We and the depositary disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for in the deposit agreement or in the Articles or in any provisions of or governing the securities on deposit.

 

   

We and the depositary further disclaim any liability for any action or inaction in reliance on the advice or information received from legal counsel, accountants, any person presenting ordinary shares for deposit, any holder of ADSs or authorized representatives thereof, or any other person believed by either of us in good faith to be competent to give such advice or information.

 

   

We and the depositary also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other benefit that is made available to holders of ordinary shares but is not, under the terms of the deposit agreement, made available to you.

 

   

We and the depositary also disclaim any liability for any action or inaction of any clearing or settlement system (and any participant thereof).

 

   

We and the depositary may rely without any liability upon any written notice, request or other document believed to be genuine and to have been signed or presented by the proper parties.

 

   

We and the depositary also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit agreement.

These provisions of the deposit agreement limit the ability of ADS holders to obtain recourse if we or the depositary fail to meet our respective obligations under the deposit agreement.

In addition, nothing in the deposit agreement gives rise to a partnership or joint venture, or establishes a fiduciary relationship, among us, the depositary and you as ADS holder.

Furthermore, nothing in the deposit agreement precludes the depositary (or its affiliates) from engaging in transactions in which parties adverse to us or the ADS owners have interests, and nothing in the deposit agreement obligates the depositary to disclose those transactions, or any information obtained in the course of those transactions, to us or to the ADS owners, or to account for any payment received as part of those transactions.

You may not receive distributions on our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses, and any taxes. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit distribution on the ADSs, ordinary shares, rights or anything else to holders of the ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available to you. These restrictions may have an adverse effect on the value of your ADSs.

Because we do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future, capital appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.

Under English law, a company’s accumulated realized profits, to the extent they have not been previously utilized by distribution or capitalization, must exceed its accumulated realized losses, to the extent that they have not been previously written off in a reduction or reorganization of capital duly made (on a non-consolidated

 

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basis), before dividends can be paid. Therefore, we must have distributable profits before issuing a dividend. In addition, as a public limited company in England, we will only be able to make a distribution if the amount of our net assets is not less than the aggregate of our called-up share capital and undistributable reserves and if, and to the extent that, the distribution does not reduce the amount of those assets to less than that aggregate.

We intend to retain earnings, if any, for use in our business and do not anticipate paying any cash dividends in the foreseeable future. As a result, capital appreciation, if any, on our ADSs will be your sole source of gains for the foreseeable future, and you will suffer a loss on your investment if you are unable to sell your ADSs at or above the initial public offering price. Investors seeking cash dividends should not purchase our ADSs in this offering.

Claims of U.S. civil liabilities may not be enforceable against us.

We are incorporated under the laws of England and Wales and have our registered office in England. The U.S. and the U.K. do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Consequently, a final judgment for payment given by a court in the U.S., whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in the U.K. In addition, uncertainty exists as to whether English courts would entertain original actions brought in England and Wales against us or our directors or senior management predicated upon the securities laws of the U.S. or any state in the U.S. Any final and conclusive monetary judgment for a definite sum obtained against us in U.S. courts would be treated by English courts as a cause of action in itself and sued upon as a debt at common law so that no retrial of the issues would be necessary, provided that certain requirements are met. Whether these requirements are met in respect of a judgment based upon the civil liability provisions of the U.S. securities laws, including whether the award of monetary damages under such laws would constitute a penalty is an issue subject to determination by the court making such decision. If an English court gives judgment for the sum payable under a U.S. judgment, the English judgment will be enforceable by methods generally available for this purpose. These methods generally permit the English court discretion to prescribe the manner of enforcement.

As a result, U.S. investors may not be able to enforce against us or our senior management, Board of Directors or certain experts named herein who are residents of the U.K. or countries other than the U.S. any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain qualified members of our Board of Directors.

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the listing requirements of Nasdaq, on which our ADSs will trade, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future, which will increase our costs and expenses.

In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some

 

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activities more time consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

We also expect that being a public company combined with these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors also could make it more difficult for us to attract and retain qualified senior management and members of our Board of Directors, particularly to serve on our audit committee and remuneration committee.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and materially harm our business, operating results and financial condition.

Risks Relating to U.S. and U.K. Tax Regimes

If we are (or one of our non-U.S. subsidiaries is) a “controlled foreign corporation” (a “CFC”), there could be adverse U.S. federal income tax consequences to certain U.S. investors.

Generally, if a U.S. investor is treated as owning, directly, indirectly or constructively, at least 10% of either the total value or total combined voting power of our stock, such U.S. investor may be treated as a “United States shareholder” with respect to each CFC in our group, if any, for U.S. federal income tax purposes. A non-U.S. corporation will generally be classified as a CFC for U.S. federal income tax purposes if United States shareholders own, directly, indirectly or constructively, more than 50% of either the total value or the total combined voting power of the stock of such corporation. Because SoftBank Group currently owns, and immediately after this offering will continue to own, more than 50% of our ordinary shares, we will be a CFC at the time of this offering or in the future if SoftBank Group owns, directly or indirectly, 50% or more (by value) of the stock of a U.S. subsidiary. In addition, because our group includes U.S. subsidiaries, our current non-U.S. subsidiaries and potentially any future newly formed or acquired non-U.S. subsidiaries generally will be treated as CFCs, regardless of whether we are treated as a CFC. A United States shareholder of a CFC may be required to annually report and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments of earnings in U.S. property, regardless of whether such CFC makes any distributions to its shareholders. Additionally, an individual that is a United States shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with CFC reporting obligations may also subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such United States shareholder’s U.S. federal income tax return for the year for which reporting was due from expiring. We cannot provide any assurances that we will furnish to any United States shareholder information that may be necessary to comply with the reporting and tax paying obligations applicable under the CFC rules of the Internal Revenue Code of 1986, as amended (the “Code”), and the United States Internal Revenue Service (the “IRS”) has provided only limited guidance on situations in which investors may rely on publicly available information to comply with their reporting and tax paying obligations with respect

 

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to foreign-controlled CFCs. U.S. investors should consult their tax advisors regarding the potential application of these rules to their investment in our ordinary shares or ADSs.

If we are a passive foreign investment company (a “PFIC”) for any taxable year, there could be adverse U.S. federal income tax consequences to U.S. investors.

In general, we will be a PFIC for any taxable year in which, after the application of certain look-through rules with respect to our subsidiaries, either (1) 75% or more of our gross income consists of passive income or (2) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, passive income (including cash and cash equivalents). For purposes of these tests, passive income generally includes, among other things, dividends, interest, gains from certain sales or exchanges of investment property and certain rents and royalties. If we are a PFIC for any taxable year during which a U.S. investor holds our shares, we will generally continue to be treated as a PFIC with respect to such U.S. investor for all succeeding taxable years during which such U.S. investor holds our ordinary shares or ADSs, even if we cease to meet the threshold requirements for PFIC status. Such U.S. investor may be subject to adverse tax consequences with respect to our ordinary shares or ADSs, including ineligibility for any preferential tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred and additional reporting requirements. We cannot provide any assurance that we will furnish to such U.S. investor information that may be necessary to comply with the reporting and tax paying obligations applicable under the PFIC rules of the Code. Such U.S. investor should consult its tax advisors regarding the potential application of these rules to their investment in our ordinary shares or ADSs.

Based upon the value of our assets and the nature and composition of our income and assets, we expect that we will not be classified as a PFIC for the taxable year ended March 31, 2023, although no assurances can be made in this regard. However, the determination of whether we are a PFIC is a fact-intensive determination made on an annual basis applying principles and methodologies that in some circumstances are unclear and subject to varying interpretation. For instance, for our current and future taxable years, the total value of our assets (including goodwill) for PFIC testing purposes may be determined in part by reference to the market price of our ordinary shares or ADSs from time to time, which may fluctuate considerably. If our market capitalization declines while we hold a substantial amount of cash and cash equivalents for any taxable year, we may be a PFIC for that taxable year. Furthermore, under the income test, our status as a PFIC depends on the composition of our income for the relevant taxable year, which will depend on the transactions we enter into in the future and our corporate structure. The composition of our income and assets is also affected by how we spend the cash we raise in any offering. As a result, there can be no assurance that we will not be treated as a PFIC for the current or any future taxable year and our U.S. counsel expresses no opinion with respect to our PFIC status for any prior, current or future taxable year. Even if we determine that we are not a PFIC for a taxable year, there can be no assurance that the IRS will agree with our conclusion and that the IRS would not successfully challenge our position.

For further discussion of the PFIC rules and the adverse U.S. federal income tax consequences in the event we are classified as a PFIC, as well as certain elections that may be available to U.S. investors, see the section of this prospectus titled “Material Tax Considerations—Material U.S. Federal Income Tax Considerations for U.S. Holders—Passive Foreign Investment Company Rules.”

Changes and uncertainties in the tax system in the countries in which we have operations, could materially adversely affect our financial condition and results of operations, and reduce net returns to our shareholders.

We conduct business globally and file income tax returns in multiple jurisdictions. Our consolidated effective income tax rate, and the tax treatment of our ADSs and ordinary shares, could be materially adversely affected by several factors, including: changing tax laws, regulations and treaties, or the interpretation thereof; tax policy initiatives and reforms under consideration (such as those related to the Inclusive Framework (as defined below), the European Commission’s state aid investigations and other initiatives); the practices of tax

 

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authorities in jurisdictions in which we operate; and the resolution of issues arising from tax audits or examinations and any related interest or penalties. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid, or the stamp duty or SDRT treatment of our ADSs or ordinary shares.

The Organisation for Economic Co-Operation and Development (“OECD”) and the G20 Inclusive Framework on Base Erosion and Profit Shifting (the “Inclusive Framework”) have put forth two proposals—Pillar One and Pillar Two—that revise the existing profit allocation and nexus rules and ensure a minimal level of taxation, respectively. In July 2023, the U.K. enacted legislation to implement the OECD framework for Pillar 2, part of which will apply effectively from January 1, 2024. Other countries are also actively considering changes to their tax laws to adopt certain parts of the Inclusive Framework’s proposals. As this framework is subject to further negotiation and implementation by each member country, the timing and ultimate impact of any such changes on our tax obligations are uncertain. These changes, if enacted into law, could have an adverse impact on our effective tax rate, income tax expense and cash flows. We are continuing to monitor legislative developments and are in the process of evaluating the potential impact of the U.K. and other legislation on our financial position, future results of operations and cash flows.

We believe that our provision for income taxes is reasonable, but the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods in which such outcome is determined. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices in jurisdictions in which we operate, could increase the estimated tax liability that we have expensed to date and paid or accrued on our financial statements, and otherwise affect our financial position, future results of operations, cash flows in a particular period and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our shareholders and increase the complexity, burden and cost of tax compliance. Additionally, our future tax liability could be impacted by changes in accounting principles or changes in applicable tax jurisdictions.

In addition, we may periodically restructure our legal entities and if taxing authorities were to disagree with our tax positions in connection with any such restructurings, our tax liability could be materially affected. In connection with any restructuring we could also incur additional charges associated with consulting fees and other charges.

We carry out extensive research and development activities, and as a result, we benefit in the U.K. from the research and development expenditure credit (“RDEC”) regime, which provides relief against U.K. corporation tax. Broadly, RDEC provides a tax credit currently equal to 20% of ‘qualifying research and development expenditure’ incurred from April 1, 2023 (the rate was previously 13% of qualifying research and development expenditure incurred from April 1, 2020 to March 31, 2023) by certain companies where certain criteria are met. To the extent a company cannot utilize the RDEC against U.K. corporation tax then certain rules apply that allow the RDEC to, among other things, reduce the tax liability of certain specified taxes (for example, value added tax or employee taxes), or be surrendered to a group company, and to the extent it is not possible to utilize the RDEC in full, then the net tax credit is paid to the company by HMRC in cash. Between January 2023 and March 2023, the U.K. government ran a consultation on the design of a single, simplified R&D tax relief scheme, expected to be based on the RDEC scheme, which would merge the existing RDEC and small and medium-sized enterprise R&D relief. The U.K. government is considering the responses and no decision has yet been made. We expect that, if implemented, the new scheme will be in place for expenditures incurred after April 1, 2024.

We also benefit from the U.K.’s “patent box” regime, which allows certain profits attributable to revenues from patented products (and other qualifying income) to be taxed at an effective corporation tax rate of 10%.

If, however, there are unexpected adverse changes to the RDEC or the “patent box” regime (including any such changes which result from the U.K. government’s response to its consultation on the design of a single, simplified R&D tax relief scheme), or for any reason we are unable to qualify for such tax incentives, then our business, results of operations and financial condition may be adversely affected.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that reflect our plans, beliefs, expectations and current views with respect to, among other things, future events and financial performance. The forward-looking statements appear in a number of places in this prospectus, including, but not limited to, the sections titled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “is/are likely to,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target,” “continue” and “ongoing,” or the negative of these terms or other comparable terminology intended to identify statements about the future. The forward-looking statements and opinions contained in this prospectus are based upon information available to us as of the date of this prospectus and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Such risks and uncertainties include, but are not limited to:

 

   

our future financial performance, including our expectations regarding our revenues, cost of sales, gross profit, operating expenses and other operating results, as well as our ability to maintain profitability;

 

   

our dependence on the semiconductor and electronics industries and the demand for the products of our customers;

 

   

our dependence on the compatibility of our products with the manufacturing and design processes of our customers;

 

   

our reliance on third parties to market and sell chips and end products incorporating our products, as well as add value to our licensed products;

 

   

our dependence on a limited number of customers for a significant portion of our revenue;

 

   

our ability to attract new customers and sell additional products to our existing customers;

 

   

the loss of any of our senior management personnel or one or more key employees or our inability to attract and retain qualified personnel;

 

   

our ability to adequately fund our research and development efforts;

 

   

risks related to the availability of development tools, systems software, EDA tools and operating systems compatible with our architecture;

 

   

our ability to protect our proprietary products and our brand, and the costs of protecting such IP rights, particularly as a result of litigation;

 

   

fluctuation and unpredictability of our results;

 

   

our ability to verify royalty amounts owed to us under our licensing agreements;

 

   

risks related to foreign exchange fluctuations;

 

   

changes in our effective tax rate;

 

   

risks associated with organic growth or growth from strategic investments or acquisitions we make, and the risk of failing to effectively manage our growth;

 

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risks associated with the slow development of the market for our connectivity, device and data management platform;

 

   

the possibility of cyberattacks, breaches of our security controls and unauthorized access to our data or a customer’s data;

 

   

our ability to satisfy data protection, security, privacy or other government- and industry-specific requirements;

 

   

risks associated with the interests of SoftBank Group conflicting with the interests of other holders of our ordinary shares and ADSs;

 

   

the effects of global general economic conditions, political factors, war or hostility, pandemics and other events outside of our control; and

 

   

other factors relating to our financial condition and arrangements.

You should refer to the section titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in the manner that we anticipate, in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law, applicable regulations or the rules of any stock exchange to which we are subject.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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USE OF PROCEEDS

We will not receive any proceeds from the sale of the ADSs by the selling shareholder (including any proceeds from any sale of ADSs pursuant to the underwriters’ option to purchase additional ADSs from the selling shareholder). All net proceeds from the sale of ADSs in this offering will go to the selling shareholder.

 

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DIVIDEND POLICY

We intend to retain any earnings for use in our business and do not currently intend to pay dividends on our ordinary shares or ADSs. The declaration and payment of any future dividends will be at the discretion of our Board of Directors and will depend upon our results of operations, cash requirements, financial condition, contractual restrictions, any future debt agreements or applicable laws and other factors that our Board of Directors may deem relevant. See the section titled “Risk Factors—Risks Relating to this Offering and Ownership of Our Securities—Because we do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future, capital appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.”

Under the laws of England and Wales, among other things, we may only pay dividends if we have sufficient distributable reserves (as determined on a non-consolidated basis), which are our accumulated realized profits that have not been previously distributed or capitalized less our accumulated realized losses, so far as such losses have not been previously written off in a reduction or reorganization of capital. In addition, as a public limited company in England, we will only be able to make a distribution if the amount of our net assets is not less than the aggregate of our called-up share capital and undistributable reserves and if, and to the extent that, the distribution does not reduce the amount of those assets to less than that aggregate.

 

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CORPORATE REORGANIZATION

On April 9, 2018, Arm Holdings Limited was incorporated as a wholly-owned subsidiary of Arm Limited under the laws of England and Wales with nominal assets and liabilities, contingencies and commitments. After consummating the corporate reorganization described herein, including the re-registration of Arm Holdings Limited as a public limited company, Arm Holdings plc became the ultimate holding company for Arm Limited. Arm Limited in turn was incorporated as a private company with limited liability under the laws of England and Wales on November 12, 1990.

Arm Holdings plc is a holding company which, since formation, has not conducted any operations other than activities incidental to the maintenance of its legal existence, the corporate reorganization and this offering. Investors in this offering will only acquire, and this prospectus only describes the offering of, ADSs representing ordinary shares of Arm Holdings plc. Ordinary shares of Arm Holdings plc will not be offered to investors as part of this offering.

The corporate reorganization took place in several steps, all of which were completed prior to the completion of this offering. We refer to these steps, which are discussed below, as our “corporate reorganization.”

Amendment of the Articles of Association of, and First Reorganization of Share Capital of, Arm Holdings Limited

On August 20, 2023, Arm Holdings Limited amended its articles of association to permit its merger reserve to legally be used to pay up the shares allotted as a bonus issue, and to allow the creation of a new class of deferred shares (which carry no or extremely limited voting rights, and no right to share in the income or capital of Arm Holdings Limited). On August 21, 2023, Arm Holdings Limited undertook a reorganization of its share capital to sub-divide its share capital of 100 ordinary shares of £1.00 each into 100,000 ordinary shares of £0.001 each.

Distribution of Ordinary Shares of Arm Holdings Limited by Arm Limited

On August 21, 2023, Arm Limited distributed 100,000 ordinary shares of £0.001 each in the capital of Arm Holdings Limited (such number of shares together constituting 100% of the ordinary shares of Arm Holdings Limited) to Kronos II LLC, Arm Limited’s majority shareholder immediately prior to the distribution. We refer to the shares of Arm Holdings Limited distributed to Kronos II LLC as the “Dividend Shares.”

Exchange of Ordinary Shares of Arm Limited for Shares of Arm Holdings Limited

Following the completion of the distribution of the Dividend Shares, on August 21, 2023, Kronos II LLC transferred its entire shareholding in the capital of Arm Limited, being 1,025,233,999 ordinary shares of £0.001 each, to Arm Holdings Limited in exchange for receiving 1,025,133,999 newly issued ordinary shares of £0.001 each in the capital of Arm Holdings Limited, and SVF HoldCo (UK) Limited transferred its entire shareholding in the capital of Arm Limited, being one ordinary share of £0.001, to Arm Holdings Limited in exchange for receiving one newly issued ordinary share of £0.001 in the capital of Arm Holdings Limited. We refer to this as the “Share Exchange.” Following the Share Exchange, the former holders of shares in Arm Limited held shares in Arm Holdings Limited of the same class and in the same proportions as their previous shareholdings in Arm Limited. Arm Limited became a wholly-owned subsidiary of Arm Holdings Limited as a result of the Share Exchange. As a result of the Share Exchange, an English company law merger reserve in Arm Holdings Limited was created.

First Bonus Issue of Arm Holdings Limited

Following the completion of the Share Exchange, on August 25, 2023, Arm Holdings Limited capitalized a portion of the amount standing to the credit of its merger reserve and applied such sums in paying up in full new

 

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ordinary shares to its shareholders, which we refer to as the “First Bonus Issue.” The First Bonus Issue was effected by the issuance of 41,639,082,915,525 ordinary shares of £0.001 each to Kronos II LLC and 40,615 ordinary shares of £0.001 each to SVF HoldCo (UK) Limited, in proportion to their shareholdings in Arm Holdings Limited. We refer to the shares issued pursuant to the First Bonus Issue as the “First Bonus Shares.”

Reduction of Capital of Arm Holdings Limited

Subsequent to the First Bonus Issue, on August 29, 2023, Arm Holdings Limited reduced its share capital by way of the cancellation of all of the First Bonus Shares pursuant to Part 17 of the Companies Act in order to create distributable reserves, which we refer to as the “Capital Reduction.” Immediately after the Capital Reduction, Kronos II LLC and SVF HoldCo (UK) Limited held 1,025,233,999 ordinary shares of £0.001 each, which we refer to as the “Post-Reduction Shares,” and one ordinary share of £0.001, respectively, in the capital of Arm Holdings Limited. As a result of the cancellation of all the First Bonus Shares, English company law distributable reserves in Arm Holdings Limited were created.

Second Bonus Issue of Arm Holdings Limited

Following the completion of the Capital Reduction, on August 29, 2023, Arm Holdings Limited capitalized the remaining amount standing to the credit of its merger reserve and applied such sums in paying up in full new ordinary shares, which we refer to as the “Second Bonus Issue.” The Second Bonus Issue was effected by the issuance of 1,025,233,999 ordinary shares of £0.001 each to National City Nominees Limited as the nominee for Citibank, N.A. – London Branch pursuant to the direction of Kronos II LLC.

Second Reorganization of Share Capital of Arm Holdings Limited

Subsequent to the completion of the Second Bonus Issue, on August 29, 2023, Arm Holdings Limited undertook a second reorganization of its share capital to re-designate all of the Post-Reduction Shares as deferred shares of £0.001 each on a one-for-one basis, which we refer to as the “Second Reorganization of Share Capital.” On August 29, 2023, Arm Holdings Limited repurchased these deferred shares for nominal consideration and cancelled such deferred shares.

Re-registration of Arm Holdings Limited as a Public Limited Company

Following the completion of the Second Reorganization of Share Capital, on September 1, 2023, Arm Holdings Limited re-registered as a public limited company under the laws of England and Wales and changed its name from Arm Holdings Limited to Arm Holdings plc.

Certain special resolutions passed by the shareholders of Arm Holdings Limited approved the re-registration as a public limited company, the name change to Arm Holdings plc and the adoption of new articles of association for Arm Holdings plc appropriate for a public limited company.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2023:

 

   

on an actual basis, derived from our unaudited financial statements included elsewhere in this prospectus; and

 

   

on an as adjusted basis to give effect to the corporate reorganization and the vesting of equity awards in connection with this offering.

You should read this information together with our financial statements and related notes appearing elsewhere in this prospectus and the information set forth under the sections titled “Presentation of Financial and Other Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    As of June 30, 2023  
    Actual     As Adjusted  
    (in millions except par
value and share data)
 

Cash and cash equivalents

  $ 1,248     $ 1,248  
 

 

 

   

 

 

 
   

Equity attributable to owners of the Company:

   

Ordinary shares, $0.001 par value, 1,025,234,000 shares authorized, issued and outstanding, actual, and 1,025,661,064 shares authorized, issued and outstanding, as adjusted

    2       2  

Additional paid-in capital

    1,275       1,696  

Accumulated other comprehensive income

    382       382  

Retained earnings

    2,562       2,321  
 

 

 

   

 

 

 

Total equity

  $ 4,221     $ 4,401  
 

 

 

   

 

 

 

Total capitalization

  $ 4,221     $ 4,401  
 

 

 

   

 

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and our expectations with respect to liquidity and capital resources, includes forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those risks and uncertainties described in the “Risk Factors” and “Special Note Regarding Forward-Looking Statements” sections in this prospectus. Our actual results could differ materially from the results described in or implied by these forward-looking statements.

Overview

Arm architects, develops, and licenses high-performance, low-cost, and energy-efficient CPU products and related technology, on which many of the world’s leading semiconductor companies and OEMs rely to develop their products. Our energy-efficient CPUs have enabled advanced computing in greater than 99% of the world’s smartphones, for the year ended December 31, 2022, and more than 250 billion chips, cumulatively, powering everything from the tiniest of sensors to the most powerful supercomputers.

We enable any company to make a modern computer chip through the unique combination of our energy-efficient CPU IP and related technologies and our unmatched ecosystem of technology partners. Our primary product offerings are leading CPU products that address diverse performance, power, and cost requirements. Complementary products such as GPUs, System IP, and compute platforms are also available and enable high-performance, efficient, reliable, system-level creation for a wide range of increasingly sophisticated devices and applications. Our development tools and robust software ecosystem have further solidified our position as the world’s most widely adopted processor architecture. Our partners include leading semiconductor technology suppliers (including foundries and EDA vendors), firmware and operating system vendors, game engine vendors, software tool providers and application software developers. Our solution, combined with the breadth of our software ecosystem and the millions of chip design engineers and software developers that utilize it, has created a virtuous cycle of adoption, which means that software developers write software for Arm-based devices because it offers the biggest market for their products, and chip designers choose Arm processors because they have the broadest support of software applications.

Today, Arm CPUs run the vast majority of the world’s software, including the operating systems and applications for smartphones, tablets and personal computers, data centers and networking equipment, and vehicles, as well as the embedded operating systems in devices such as smartwatches, thermostats, drones and industrial robotics. The exponential rise in smart devices in both consumer and enterprise markets has increased the demand for chips that provide more computational capability while optimizing for energy efficiency. This trend has driven the dramatic growth of Arm CPUs over the past several years. The scale of our reach continues to expand, with more than 30 billion Arm-based chips reported as shipped in the fiscal year ended March 31, 2023 alone, representing an approximately 70% increase since the fiscal year ended March 31, 2016.

Our creation of the Arm CPU architecture, the world’s most widely used CPU architecture, has resulted in the proliferation and evolution of computers as people know them today. We enabled the mobile phone and smartphone revolution, and through our focus on energy efficiency and our history of continuous innovation, we have enabled new categories of “smart” consumer electronics. Today, we are redefining what is possible in industries such as cloud computing, automotive, and IoT. As a result, in the fiscal year ended March 31, 2023, more than 260 companies reported that they had shipped Arm-based chips, and we estimate that approximately 70% of the world’s population uses Arm-based products.

We have long-standing, significant market share in high-value markets, such as mobile applications processors, which enables us to invest in other growth opportunities. Our long-term growth strategy includes

 

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expanding our market share in growth markets, including cloud compute, networking equipment, automotive and consumer electronics. We believe that the increasing need for high-powered and energy-efficient computing, as well as our continued investments, will enable us to grow our share in these segments. We also intend to expand our system IP and platform product offerings by continuing to develop a broader set of systems IP specifically developed for use with Arm processors. Across all our end markets and products, we believe that, as chip designs become more advanced and complex, our investments in additional functionality, higher performance, higher efficiency, and more specialized designs will allow us to deliver more value to our partners.

We have achieved significant growth since our inception. For our fiscal years ended March 31, 2023, 2022 and 2021, our total revenue was $2,679 million, $2,703 million and $2,027 million, respectively. Over that same period, net income from continuing operations was $524 million, $676 million and $544 million, respectively.

Our Business Model

We have a flexible business model for licensing products to customers, and we are continuously assessing our ability to provide greater flexibility to our customers and maximize the number of design wins for our products. Our customers license our products for a fee, which gives them access to our products and enables them to develop Arm-based processors. Once a processor has been designed and manufactured with our products, we receive a per-unit royalty on substantially all Arm-based chips shipped by our customers. Our business model enables the widest range of customers to access Arm products through an agreement best suited to their particular business needs. Our licensing and royalty business model includes:

 

   

Arm Total Access Agreements: Under an Arm Total Access agreement, we license a portfolio of CPU designs and related technologies to a customer in return for an annual fee determined at execution of the agreement. We retain the right, from time to time, to add or remove specific products from the package. The agreement is for a fixed term and may limit the number of concurrent chip designs that may use products from the package.

 

   

Arm Flexible Access Agreements: Under an Arm Flexible Access agreement, we license a portfolio of CPU designs and related technologies to a customer in return for an annual fee determined at execution of the agreement. Unlike an Arm Total Access license, the package of products licensed pursuant to an Arm Flexible Access agreement will not contain our latest products. Although customers are free to experiment with products contained in the Arm Flexible Access package, they must pay a single use license fee for specific products if they include Arm products in a final chip design “tape out,” when the final result of a semiconductor chip design is sent for manufacturing. As with an Arm Total Access agreement, we retain the right, from time to time, to add or remove specific products from the package.

 

   

Technology Licensing Agreements (TLA): Under a TLA, we license a single CPU design or other technology design to a customer in return for a fixed license fee. The license may be limited by term (i.e., the number of years during which the licensee is entitled to incorporate our products in new chip designs, but licensees typically have the right to manufacture designs perpetually) and/or by number of uses (i.e., the number of concurrent chip designs that may use our products).

 

   

Architecture License Agreements (ALA): Under an ALA, the licensee is allowed to develop their own highly customized CPU designs that is compliant with the Arm ISA for a fixed architecture license fee. As the creation of an optimized CPU is very costly and time consuming, architecture licensees will often also license Arm CPU designs to use either as a complementary processor alongside the licensee’s Arm-compliant CPU design, or in other chips where the licensee’s own design is unsuitable.

 

   

Royalty Fees: We generate the majority of our revenue from customers who enter into license agreements, pursuant to which we receive royalty fees based on average selling price of the customer’s Arm-based chip or a fixed fee per chip. Royalty revenues are impacted primarily by the adoption of our products by the licensee as well as other factors, such as product lifecycles, customer’s business performance, market trends and global supply constraints. In the fiscal year ended March 31, 2023, royalty revenue represented 63% of our total revenue.

 

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Historically, most customers licensed our products under the terms of a TLA. In 2019 and 2021, we introduced the Arm Flexible Access and Arm Total Access agreements, respectively, to enable the widest range of customers to access our products through methods best suited to their particular business needs. We believe that the Arm Total Access and Arm Flexible Access agreements provide enhanced flexibility for our customers (as compared to the TLA business model) and increase the number of chip designs using our products. While certain customers will elect to remain TLA customers, some customers are in the process of transitioning from TLAs to Arm Total Access and Arm Flexible Access agreements. We may experience variability in license revenues due to the timing of product deliveries within each TLA, Arm Total Access and Arm Flexible Access agreement. However, because Arm Total Access and Arm Flexible Access agreements are renewable in nature, as customers transition away from TLAs, we expect our visibility into future license revenues to improve.

We typically are able to command a royalty for chips that contain our products, which creates a long-term recurring revenue opportunity from each design win. We typically see sustained revenue streams from older chips, as products containing those chips continue to be sold and older processors are incorporated into new chips, creating a cumulative effect that fuels long-term growth. For example, based on royalty revenue information provided to us by customers in quarterly royalty reports, approximately 46% of our royalty revenue for the fiscal year ended March 31, 2023 came from products released between 1990 to 2012. Additionally, as we transition to more Arm Total Access and Arm Flexible Access licenses, we expect more of our products to be incorporated into more of our customers’ chip designs, and our royalty revenue to increase over time as a result.

 

LOGO

Key Factors and Trends Affecting Our Operating Results

We believe that the growth of our business and our future success are dependent upon many factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus as well as the factors described below. While each of these factors presents significant opportunities for us, these factors also pose challenges that we must successfully address in order to sustain the growth of our business and enhance our results of operations.

 

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Global Demand for Semiconductor Products and Cyclical Nature of the Semiconductor Industry

Semiconductor chips are essential components in consumer, enterprise, and automotive electronics, which has resulted in sustained and increasing long-term demand for semiconductor chips, a significant percentage of which contain our products. Our license and royalty revenues are, in part, affected by market conditions in the semiconductor industry, which is cyclical by nature and impacted by broad economic factors, such as worldwide gross domestic product and consumer and enterprise spending. While the semiconductor industry has experienced significant, prolonged, and sometimes sudden downturns in the past, we expect there to be continued and increasing demand for semiconductors over the long term as macro trends drive device manufacturers to produce more powerful and energy-efficient devices.

Because our royalty revenue is dependent on the number of Arm-powered chips shipped by our customers, dislocations created by cyclical, economic factors generally affect demand for our customers’ chips and, consequently, may result in variability in our operating performance. Royalties are recognized on an accrual basis in the quarter in which the customer ships products incorporating our products. A material portion of the accrual is estimated using trend analysis of market and sales data as well as customer-specific financial information with a true-up in the following quarter based on actual sales data once received. Accordingly, differences between our estimated market trends and our customers’ forecasts of their chip shipments can lead to variability in our royalty revenues.

Our Market Share Across End Markets

Arm CPUs are the world’s most widely licensed and deployed processors. Our products are used in almost all smartphones, the majority of tablets and digital TVs, and a significant proportion of all chips with embedded processors, including for both consumer and enterprise applications. For the year ended December 31, 2022, we had a greater than 99% share of the smartphones market and a very high share in a range of other electronic devices, from digital TVs to drones. As new high-growth markets for electronics emerge and incorporate more AI and ML workloads, they require our more advanced processor designs in areas such as cloud computing, the automotive industry, and the IoT economy. Our operating and financial performance is dependent, in large part, upon maintaining our market share in the smartphone and consumer electronics markets and maintaining or growing market share in our other target markets.

Ability to Provide Our Customers with More Value Per Chip

We believe our ability to continue to develop more advanced products and offer increasingly comprehensive product packages, including providing more complete subsystems, will encourage greater use of our products by existing and prospective customers. For example, some licensees may combine multiple different Arm CPUs in a single chip, Arm CPUs with other Arm IP such as Arm GPUs, or deploy Arm CPU implementations with more than 100 cores. Some customers may be better served by the integration of our IP into a subsystem with additional information to assist in fabrication. For chips where our products have provided more value, we will typically receive a higher royalty rate per chip. Accordingly, we believe that our investments in higher performance, higher efficiency, and more specialized designs will drive greater demand for our products and higher value for our customers, which is expected to result in higher royalty fees. Our future performance is dependent on our continued ability to provide value to customers, and our ability to drive additional value through technological innovation.

Increasing Design Wins with Existing and Prospective Customers

We have in the past and will continue to make significant investments in research and development to ensure that we can develop products suitable for new opportunities with existing and prospective customers. A key measure of our success is our customer design wins. Because we are often embedded within our customers’ R&D functions, we typically have significant, unique visibility into our customers’ product development

 

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pipelines, which we believe positions us to capture design wins to a greater extent than our competitors. A “design win” occurs when a customer decides to include an Arm CPU product or related technology within one of their chip designs. For customers who already license our products, a new design win does not necessarily require a customer to sign a new license. By licensing a portfolio of Arm products to our customers (rather than licensing a single CPU design or other technology design), we have made it easier and more compelling for customers to access and utilize more Arm products, further broadening our potential customer base and end-market penetration. Our licensing options provide greater flexibility to our customers and maximize our opportunities to secure more design wins for our products, which results in greater opportunities to increase our recurring royalty revenue.

Performance of Arm China

We depend on our commercial relationship with Arm China to access the PRC market, and a significant portion of our total revenue is generated from Arm China, a related party. Arm China has the right to sublicense our processor technology pursuant to the IPLA. Our responsibility under the IPLA is to facilitate delivery of our processor technology to Arm China’s end customers in accordance with detailed instructions and other specifications from Arm China. For additional information regarding the IPLA, see “Business—The IPLA with Arm China.” Our revenue is calculated as a percentage of license and royalty fees earned by Arm China from sub-license arrangements entered into with its end customers. Where our revenue is earned as a percentage of the license fee received by Arm China, we categorize such revenue as our license revenue. Our share of Arm China’s royalties is categorized as Royalties in our financial statements. Despite our significant reliance on Arm China through our commercial relationship with them, both as a source of revenue and as a conduit to the important PRC market, Arm China operates independently of us. Under the IPLA, Arm China’s payments due to us are determined based on the financial information that Arm China provides to us. Accordingly, we are dependent on Arm China providing us with reliable and timely financial information. Additionally, political actions, including trade and national security policies of the U.S. and PRC governments, such as tariffs, placing companies on restricted lists, or new end-use controls, have in the past, currently do and could in the future limit or prevent us, directly or through our commercial relationship with Arm China, from transacting business with certain PRC customers or suppliers, limit, prevent or discourage certain PRC customers or suppliers from transacting business with us or Arm China, or make it more expensive to do so, which could adversely affect demand for our products. For the fiscal year ended March 31, 2023, although our total revenues derived from the PRC increased as compared to the prior year, the growth in our royalty revenues slowed for the same period primarily as a result of economic issues in the PRC and factors related to export control and national security matters. Furthermore, in light of these issues, we expect to continue to see declining royalty revenues derived from the PRC and we could see a decline in licensing revenues. See “Risk Factors—Risks Relating to Our Business and Industry—Our concentration of revenue from the PRC market makes us particularly susceptible to economic and political risks affecting the PRC, which could be exacerbated by tensions between (on the one hand) the U.S. or the U.K. and (on the other hand) the PRC with respect to trade and national security.”

Developments in Export Control Regulations

In October 2022, the BIS of the U.S. Department of Commerce published changes to U.S. export control regulations that restrict the PRC’s semiconductor and supercomputing industries’ ability to obtain advanced computing chips, as well as software, hardware, equipment, and technology used to develop and maintain supercomputers and manufacture advanced semiconductors. We have been impacted by the implementation in October 2022 of rules by the BIS, which principally relate to (i) implementing new process requirements that require licensees to disclose semiconductor manufacturing facilities used for manufacturing Arm-based integrated circuit designs; and (ii) controlling previously non-controlled Arm interconnect IP as well as releasing a modified version of such IP that does not exceed the BIS performance thresholds for the PRC. We anticipate additional changes to U.S. export control regulations in the future, but we cannot forecast the scope or timing of such changes. We will continue to monitor such developments, including potential additional trade restrictions, and other regulatory or policy changes by the U.S. and foreign governments.

 

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Impact of the Current Macroeconomic Environment and Geopolitical Events

Uncertainty in the macroeconomic environment, resulting from a range of events and trends, including the recent financial institution failures, rise in global inflation and interest rates, supply chain disruptions, geopolitical pressures, including the unknown impact of current and future U.S. and PRC trade regulations, changes in PRC-Taiwan relations, the war in Ukraine, fluctuation in foreign exchange rates, and associated global economic conditions have resulted in volatility in our operating performance. For example, the war in Ukraine could lead to further market disruptions and exacerbate current supply chain constraints, including with respect to certain materials and metals, which are essential in semiconductor manufacturing. Furthermore, given the concentration of semiconductor manufacturing in East Asia (particularly in Taiwan), any potential escalation in geopolitical tensions in Asia, particularly with respect to Taiwan, could significantly disrupt existing semiconductor chip manufacturing and increase the prospect of increased interruption to the semiconductor chip supply across the world.

Investment in Technology and Product Development

To remain competitive, we must continue to develop new applications and enhancements to our existing products and services, particularly as next-generation technology is adopted by market participants. Allocating and maintaining adequate research and development resources, such as the appropriate personnel and development technology, to meet the evolving demands of the market is essential to our continued success.

Recent Events and Transactions

Arm China Investment Sale

Prior to restructuring our investment in March 2022, we held an approximate 48% equity holding, accounted for as an equity method investment, in Arm China. In March 2022, we distributed our interest in Arm China to Acetone Limited, a company under control of SoftBank Group, our controlling shareholder, for contractual consideration of approximately $930 million. We retained a 10% non-voting shareholding interest in Acetone Limited, which represents an approximate 4.8% indirect interest in Arm China. As a result of these transactions, we recognized a net distribution to our immediate shareholders of $976 million. Our indirect equity interest in Arm China is recorded in income from equity investments, net on the Consolidated Income Statements included elsewhere in this prospectus. See “Related Party Transactions—Transactions with Associates—Arm China” for additional information regarding the sale of our equity interest in Arm China and related transactions.

Treasure Data and IoTP Disposals

Following a strategic decision in 2021 to place greater focus on our core technology licensing business, we decided to distribute or sell certain components of our IoT business to subsidiaries of SoftBank Group. In June 2021, we distributed all of the equity interests in Treasure Data, Inc. and its subsidiaries (“Treasure Data”) to our shareholders, and in November 2021 we sold Pelion IOT Limited and its subsidiaries (“IoTP”) to SoftBank Group Capital Limited. Treasure Data’s and IoTP’s net assets upon distribution and sale were approximately $44 million and $12 million, respectively. Upon distribution and sale, Treasure Data and IoTP qualified for classification as discontinued operations and therefore the results of operations have been reclassified to discontinued operations for all historical periods. Following the disposals we do not have significant involvement with either company. During the fiscal years ended March 31, 2022 and 2021, we recognized net losses from discontinued operations of $127 million and $156 million, respectively. Included in net losses from discontinued operations are income tax expense (benefits) from discontinued operations of $28 million and $(38) million during the fiscal years ended March 31, 2022 and 2021, respectively.

Key Financial and Operating Metrics

We use the following key performance indicators and non-GAAP financial measures to analyze our business performance and financial forecasts and to develop strategic plans, which we believe provide useful

 

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information to the market to aid in understanding and evaluating our results of operations in the same manner as our management team. Certain judgments and estimates are inherent in our processes to calculate these metrics. These key performance indicators and non-GAAP financial measures are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may differ from similarly titled metrics or measures presented by other companies. The following table sets forth a summary of the key financial and operating metrics:

 

     For the Fiscal Year
Ended March 31,
     For the Fiscal Quarter
Ended June 30,
 
     2023      2022      2021      2023      2022  
(in millions, except for Number of extant Arm Total
Access and Arm Flexible Access Licenses)
                                  

Total revenue

   $ 2,679      $ 2,703      $ 2,027      $ 675      $ 692  

Operating income

     671        633        239        111        294  

Non-GAAP operating income(1)

     783        731        304        272        297  

Net income from continuing operations

     524        676        544        105        225  

Non-GAAP net income from continuing operations(1)

     657        663        207        246        236  

Net cash provided by (used for) operating activities

     739        458        1,233        (114      (231

Non-GAAP free cash flow(1)

     606        346        1,030        (150      (268

Operating metrics:

              

Number of chips shipped(2)

     30,583        29,190        25,281        6,844        7,314  

Number of extant Arm Total Access licenses(2)

     18        8        4        20        10  

Number of extant Arm Flexible Access licenses(2)

     203        191        129        214        190  

Annualized contract value(2)

   $ 1,030      $ 1,030      $ 915      $     1,048      $     1,052  

 

  (1)

Non-GAAP operating income, Non-GAAP net income from continuing operations and Non-GAAP free cash flow are non-GAAP financial measures. For more information regarding our use of these measures and a reconciliation of these measures to the most directly comparable GAAP financial measures, see “—Non-GAAP Financial Measures—Reconciliation of Non-GAAP Financial Measures” below.

  (2)

As of the last day of the applicable period.

Number of Chips Shipped

Each quarter, most of our customers, and those contracted through Arm China, furnish us (directly or via Arm China) with royalty reports setting forth the actual number of Arm-powered chips they shipped in the immediately preceding quarter. Royalty reports received in the 12-month period from April 1 to March 31 of each year relate to chip shipments made in the period from January 1 to December 31 of each year. We also perform various procedures to assess customer data related to royalties for reasonableness, and our license agreements generally include rights for us to audit the books and records of our customers to verify certain types of customer data.

We consider the number of chips reported as shipped by our customers as a key performance indicator because it represents the acceptance of our products by companies who use chips in their products (e.g., our customers’ customers). The number of chips shipped also provides insight into chip pricing and volumes in different end markets, which helps inform our pricing models and competitive positioning.

 

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Number of Extant Arm Total Access and Arm Flexible Access Licenses

Each quarter, we track the number of extant Arm Total Access and Arm Flexible Access licenses with our customers, and those contracted through Arm China. We believe that, over time, many of our customers will transition to either an Arm Total Access or Arm Flexible Access license to access our products. This transition enables us and our customers to focus less on contract negotiations and more on how our products can be deployed in our customers’ future chips.

We consider the number of extant Arm Total Access and Arm Flexible Access licenses as a key performance indicator as it represents the increasing collaboration between us and our customers, which could be a leading indicator to more chips being designed with our products and, accordingly, more recurring royalty revenue in the future, improving our long-term market share.

Annualized Contract Value

Each quarter, we track the annualized contract value (“ACV”) relating to licensing agreements signed with our customers and those contracted through Arm China per the aggregate license fee as shared under the IPLA. We define ACV as the total annualized committed fees, excluding any potential future royalty revenue, for all signed agreements deemed to be active through the last day of each applicable reporting period. Arm Total Access agreements and ALAs are deemed to be active for, and annualized over, the number of years in the contract. Any other license agreements, including single use and limited use licenses issued under an Arm Flexible Access agreement or TLA, are deemed to be active for, and annualized over, three years based on the historical licensing patterns of our customers. The aggregate license fee shared by Arm China is also deemed to be active for, and annualized over, three years.

ACV is an operational metric based on committed fees, excluding royalties, not recognized revenue, and therefore is not reconcilable to, nor a substitute for, revenue reported under GAAP. However, we consider ACV to be a key operational metric that we use to track existing licensing commitments with our customers. Bookings of new licenses and recognized revenue may fluctuate materially from quarter to quarter due to customer buying patterns, timing of subscription renewals and as a function of contract duration. As a result, we believe ACV provides an additional understanding of our business performance and long-term trends.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we utilize and present financial measures that are not calculated and presented in accordance with GAAP. Our non-GAAP financial measures include Non-GAAP operating income, Non-GAAP net income from continuing operations, and Non-GAAP free cash flow, each of which is described below. We believe our non-GAAP financial measures are useful in evaluating our operating performance and liquidity position. We use the non-GAAP financial measures presented below, collectively, to evaluate our ongoing performance and for internal planning, forecasting and budgeting purposes. We believe that the presentation of our non-GAAP financial measures, when viewed holistically, is helpful to investors in assessing the consistency and comparability of our performance in relation to prior periods and facilitates comparisons of our financial performance relative to our competitors, particularly with respect to competitors that present similar non-GAAP financial measures in addition to their GAAP results.

Non-GAAP financial measures are presented for supplemental information purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may not align with similar financial measures presented by our competitors, which may limit the ability of investors to assess our performance relative to certain peer companies.

 

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A reconciliation of each of our non-GAAP financial measures to the most directly comparable financial measure presented in accordance with GAAP is presented below.

Non-GAAP Operating Income and Non-GAAP Net Income From Continuing Operations

We utilize Non-GAAP operating income and Non-GAAP net income from continuing operations for the purpose of assessing our operating performance.

We define Non-GAAP operating income as our GAAP operating income excluding purchased intangible asset amortization, share-based compensation expense associated with equity awards where our intent is to issue equity upon vesting (in lieu of cash settlement) following the occurrence of an initial public offering or change in control, costs associated with disposal activities, impairment of long-lived assets, restructuring and related costs, public company readiness costs, and other operating income (expenses), net, which includes costs of COVID-19 response programs.

We define Non-GAAP net income from continuing operations as our GAAP net income excluding acquisition-related intangible asset amortization, share-based compensation expense associated with equity awards where our intent is to issue equity upon vesting (in lieu of cash settlement) following the occurrence of an initial public offering or change in control, costs associated with disposal activities, impairment of long-lived assets, restructuring and related costs, public company readiness costs, other operating income (expenses), net, which includes costs of COVID-19 response programs, (income) loss from equity method investments, and income tax effect on non-GAAP adjustments. We exclude these items from our Non-GAAP operating income and Non-GAAP net income from continuing operations measure because they are non-cash in nature, or because the amount and timing of these items is unpredictable, not driven by core results of operations and renders comparisons with prior periods and competitors less meaningful. We believe Non-GAAP operating income and Non-GAAP net income from continuing operations provide useful information to investors and others in understanding and evaluating our results of operations, as well as provide a useful measure for period-to-period comparisons of our business performance. Moreover, we have included Non-GAAP operating income and Non-GAAP net income from continuing operations in this prospectus because they are key measurements used by our management internally to make operating decisions, including those related to analyzing operating expenses, evaluating performance, and performing strategic planning and annual budgeting.

Non-GAAP operating income and Non-GAAP net income from continuing operations have limitations as financial measures, should be considered as supplemental in nature, and are not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:

 

   

Non-GAAP operating income and Non-GAAP net income from continuing operations exclude certain recurring, non-cash charges, such as acquisition-related intangible asset amortization, and although these are non-cash charges, the assets being amortized contribute to revenue generation and may have to be replaced in the future. Non-GAAP operating income and Non-GAAP net income from continuing operations do not reflect all cash requirements for such replacements or for new capital expenditure requirements; and

 

   

Non-GAAP operating income and Non-GAAP net income from continuing operations exclude share-based compensation expense associated with equity awards where our intent is to issue equity upon vesting (in lieu of cash settlement) following the occurrence of an initial public offering or change in control. Share-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy.

Because of these limitations, you should consider Non-GAAP operating income and Non-GAAP net income from continuing operations alongside other financial performance measures, including operating income, net income and our other GAAP results. For more information regarding our use of these measures and a reconciliation to the most directly comparable GAAP financial measure, see “—Reconciliation of Non-GAAP Financial Measures.”

 

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Non-GAAP Free Cash Flow

We monitor Non-GAAP free cash flow for the purpose of measuring our liquidity. We define Non-GAAP free cash flow as cash flow from operations minus capital expenditures and intangibles, offset by proceeds realized from capital disposal activities. We believe that Non-GAAP free cash flow is a meaningful indicator of liquidity that provides information to our management and investors about the amount of cash generated from operations, after purchases of property and equipment and purchases of intangible assets, that can be used for investment in our business and for acquisitions as well as to strengthen our balance sheet. Non-GAAP free cash flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operations. Non-GAAP free cash flow does not reflect our ability to meet future contractual commitments and may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure. For more information regarding our use of this measure and a reconciliation to the most directly comparable GAAP financial measure, see “—Reconciliation of Non-GAAP Financial Measures.”

Reconciliation of Non-GAAP Financial Measures

The non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly titled non-GAAP financial measures used by other companies. A reconciliation of each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP is provided below. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view the non-GAAP financial measures in conjunction with their respective related GAAP financial measures.

The following is a reconciliation of Non-GAAP operating income to Operating income, the most directly comparable GAAP financial measure:

 

     For the Fiscal Year
Ended March 31,
    For the Fiscal Quarter
Ended June 30,
 

(in millions)

   2023      2022      2021       2023         2022    

Operating income

   $ 671      $ 633      $ 239     $ 111     $ 294  

Adjusted for:

            

Acquisition-related intangible asset amortization

     5        9        11       1       2  

Share-based compensation expense (equity settled)(1)

     60        30        41       146       (7

Costs associated with disposal activities

     4               4             (1

Impairment of long-lived assets

            21        3              

Restructuring and related costs

     1        26                    1  

Public company readiness costs

     42        11        1       14       8  

Other operating income (expenses), net

            1        5              
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Non-GAAP operating income

   $ 783      $ 731      $ 304     $ 272     $ 297  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)

Total share-based compensation expense, including both cash and equity settled awards, was $326 million, $26 million and $54 million for the fiscal years ended March 31, 2023, 2022 and 2021, respectively. In the fiscal year ended March 31, 2022, the equity-settled share-based compensation expense of $30 million was more than the total share-based compensation expense of $26 million due to liability-settled share-based compensation expense credits primarily attributable to executive departures. Total share-based compensation expense, including both cash and equity settled awards, was $158 million and $13 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. In the quarter ended June 30, 2022, the share-based compensation income of $7 million pertains to a decrease in fair value of certain liability-classified awards that will be settled in equity at the time of vesting. For non-GAAP purposes, we

 

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  adjust for those awards that are currently liability-classified but will be equity settled after the initial public offering. Liability-classified awards are remeasured at the end of each reporting period through the date of settlement to ensure that the expense recognized for each award is equivalent to the amount to be paid in cash or equity settled after the initial public offering.

The following is a reconciliation of Non-GAAP net income from continuing operations to Net income from continuing operations, the most directly comparable GAAP financial measure:

 

     For the Fiscal Year
Ended March 31,
    For the Fiscal Quarter
Ended June 30,
 

(in millions)

   2023      2022      2021       2023         2022    

Net income from continuing operations

   $   524      $ 676      $ 544     $   105     $   225  

Adjusted for:

            

Acquisition-related intangible asset amortization

     5        9        11       1       2  

Share-based compensation expense (equity settled)(1)

     60        30        41       146       (7

Costs associated with disposal activities

     4               4             (1

Gain on disposal of business

     (4                          

Impairment of long-lived assets

            21        3              

Restructuring and related costs

     1        26                    1  

Public company readiness costs

     42        11        1       14       8  

Other operating income (expenses), net

            1        5              

(Income) loss from equity method investments, net

     45        (141      (476     7       14  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Pre-tax total non-GAAP adjustments

     153        (43      (411     168       17  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income tax effects on non-GAAP adjustments

     (20      30        74       (27)       (6
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Non-GAAP net income from continuing operations

   $ 657      $ 663      $ 207     $ 246     $ 236  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)

Total share-based compensation expense, including both cash and equity settled awards, was $326 million, $26 million and $54 million for the fiscal years ended March 31, 2023, 2022 and 2021, respectively. In the fiscal year ended March 31, 2022, the equity-settled share-based compensation expense of $30 million was more than the total share-based compensation expense of $26 million due to liability-settled share-based compensation expense credits primarily attributable to executive departures. Total share-based compensation expense, including both cash and equity settled awards, was $158 million and $13 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. In the quarter ended June 30, 2022, the share-based compensation income of $7 million pertains to a decrease in fair value of certain liability-classified awards that will be settled in equity at the time of vesting. For non-GAAP purposes, we adjust for those awards that are currently liability-classified but will be equity settled after the initial public offering. Liability-classified awards are remeasured at the end of each reporting period through the date of settlement to ensure that the expense recognized for each award is equivalent to the amount to be paid in cash or equity settled after the initial public offering.

 

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The following is a reconciliation of Non-GAAP free cash flow to Net cash provided by operating activities, the most directly comparable GAAP cash flow measure:

 

     For the Fiscal Year
Ended March 31,
    For the Fiscal Quarter
Ended June 30,
 

(in millions)

   2023      2022      2021(1)       2023         2022    

Net cash provided by (used for) operating activities

   $ 739      $ 458      $ 1,233     $ (114   $ (231

Adjusted for:

            

Purchases of property and equipment

     (64      (34      (104     (26     (12

Purchases of intangible assets

     (29      (41      (61     —         (14

Payment of intangible asset obligations

     (40      (37      (38     (10     (11
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Non-GAAP free cash flow

   $ 606      $ 346      $ 1,030     $ (150   $ (268
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)

Includes a one-time $750 million non-cancellable and non-refundable prepayment from a large technology customer.

Components of Results of Operations

Total Revenue

Most of our licenses have two components: license fees and support and maintenance fees (recognized as license and other revenue) and per-chip royalties (recognized as royalty revenue). However, some licenses can have multiple payment milestones that are date-based or event-based (e.g., six months after the effective date of the contract or upon tape-out of the first chip design).

We disaggregate revenue into the following major categories:

License and Other Revenue

License and other revenue includes revenue from licensing, software development tools, design services, training, support, and all other fees that do not constitute royalty revenue. The products licensed by us consists of design information and related documentation to enable a customer to design and manufacture semiconductor chips and related technology. Over the term of a license, contractual payments can generally range from hundreds of thousands of dollars to hundreds of millions of dollars, depending on the type of license, its duration, and the type of product that is being licensed. A license may be perpetual, use-limited or time-limited in its application. Delivery (i.e., providing the customer access to the licensed products) generally occurs within a short period after executing a license agreement. In some cases, we may license products that are still under development, in which case delivery can be many months, or even years, after executing a license agreement. We generate a significant proportion of our Licensing and other revenues from a relatively small number of customers.

License fees are invoiced pursuant to an agreed schedule. Typically, the first invoice is generated upon signing of the license agreement, and licensing and other revenue is recognized upon delivery of the products. In addition to the license fees, our license agreements generally provide for customer support services, which consist of telephonic or e-mail support. Fees for customer support services are generally specified in the contract. Typically, no upgrades to the licensed products are provided, except those updates and upgrades provided on a when-and-if-available basis. Revenues from customer service support are recorded within other revenues.

Arm Flexible Access agreements provide our customers with access to a wide range of processor, graphics, and systems products, especially older and less performant products. Arm Flexible Access agreements have two components: an annual low-cost portfolio license fee payable in installments and a license fee once they have reached “tape-out,” which occurs when the final result of our customer’s semiconductor chip design incorporating our products is sent for manufacturing, at which point they decide which of our products they wish to deploy in their chip. We believe that Arm Flexible Access agreements are most suitable for smaller

 

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companies, including start-ups and business units of larger companies, that want to experiment with different configurations of our products before committing to a chip design. As of June 30, 2023, we had 214 extant Arm Flexible Access agreements with our customers, reflecting an increase of 85 from 129 as of March 31, 2021.

Arm Total Access agreements also provide our customers with access to a package of our products, including processor, graphics, and systems products. Arm Total Access customers have the option to license our most advanced processors as part of the package. Arm Total Access customers pay a periodic portfolio license fee to maintain access to our products. There are no additional fees payable by our customers under our Arm Total Access agreements upon tape-out because manufacturing design rights are included within the portfolio license fee and are reflected in the license pricing. We believe that Arm Total Access agreements are most suitable for larger, established, semiconductor companies who expect to deploy our products in a wide range of their products. As of June 30, 2023, we had 20 extant Arm Total Access agreements with our customers, reflecting an increase of 16 from 4 as of March 31, 2021.

We provide software development tools and a range of services to companies developing chips based on our products. These tools and services include, among others: (i) software development tools for engineers to write and debug software on Arm processors, (ii) design license and development services to customize technology IP tailored towards customers’ specific needs, (iii) training on our products and how to write software to utilize their functionality and capability, and (iv) support and maintenance, for which we generally require an annual fee for a minimum of one year.

Royalty Revenue

Royalties are generally either set as a percentage of the licensee’s average selling price per chip or as a fixed amount per chip. The royalty rates per chip typically reduce over time as the total volume of chips incorporating our products shipped increases; notwithstanding such reductions in royalty rates and fees per chip, license agreements with component manufacturing customers typically include a minimum royalty percentage or fee per chip. Royalty payment schedules in individual license agreements vary depending on the nature of the license and the degree of market acceptance of our products on the date the license agreement is executed. In addition, the amount of royalty payments in respect of our products can increase as the customer integrates more of our products into the chip. See “—Key Factors and Trends Affecting Our Operating Results—Ability to Provide Our Customers with More Value Per Chip” above for examples of how customers may incorporate multiple products in a single chip. License contracts require the licensee to issue royalty reports, including details of chip sales, to us on a quarterly basis.

Royalty revenue is recognized on an accrual basis in the quarter in which the customers ship chips containing our products, using an estimate based on sales trends and judgment for several key attributes, including industry estimates of expected shipments, the percentage of markets using our products, and average selling price (with a true-up in the following quarter based on actual sales data once received).

Revenues from External Customers and Related Parties

We also separately present revenues derived from contracts with our external customers and those derived from related parties. Revenues from related parties are derived from Arm China and customers in which we have an equity method investment.

Cost of Sales

Cost of sales (“COS”) is comprised primarily of the costs of providing technical support and training to our customers. Occasionally, some Research and Development costs may be classified as COS if one of our IP products is being customized as part of professional and design services. COS expenses consist primarily of employee-related expenses, project costs associated with professional services and the provision of support and maintenance to customers, along with expenses related to license development services revenue, amortization of

 

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developed technology, and allocated overhead. Employee-related expenses include salaries, bonuses, share-based compensation and associated benefits.

Research and Development

Research and development is at the heart of our business and critical to our future success. Accordingly, we have always invested, and will continue to invest, significant resources in our R&D program. Our vision to invest and develop new products is driven by our desire to maintain or increase our market share and create value for our customers. By developing and licensing innovative products, we allow our customers to focus their resources on competitive differentiation, unique to their own ability to differentiate.

We have substantially increased our R&D investment to focus on long-term returns and to replicate the strong position that we maintain in smartphones and in other markets, such as automotive, networking equipment, cloud compute and industrial IoT. Each generation of processor is typically more advanced and more complex than the previous generation, which requires increased development efforts that may be partially offset by improvements in productivity. Consequently, each year we increase our R&D investment in line with the increased development needs of the next generation of products. Engineers are in high demand and well-remunerated, and accordingly our increased R&D activity will continue to result in an increase in costs, principally driven by salaries for such technical employees and the costs of tools they need.

R&D expenses consist primarily of employee-related expenses, including salaries, bonuses, share-based compensation, and benefits associated with employees in research and development functions, along with project materials costs, third-party fees paid to consultants, depreciation and amortization, allocated overhead, information technology and other development expenses. We receive government grants to compensate for certain research activities and we recognize the benefit as a reduction of the related expenses included in R&D expenses.

Selling, General and Administrative

Our engineering teams are well supported by vital selling, general and administrative functions. Selling, general and administrative expenses consist primarily of employee-related expenses, including salaries, bonuses, share-based compensation, and benefits associated with employees in sales and marketing, along with corporate and administrative functions, including accounting and legal professional services fees, depreciation and amortization, advertising expenses, allocated overhead, information technology and other corporate-related expenses.

Disposal, Restructuring and Other Operating Expenses, Net

In recent years, we have invested in new systems for our commercial and finance teams to streamline our operations and create efficiencies. In March 2022, we announced a restructuring plan to align our selling, general and administrative workforce with strategic business activities. The expenses associated with this plan are included within “Disposal, restructuring and other operating expenses, net” in the consolidated income statements and consist of employee termination benefits and other related costs. Disposal expenses consist primarily of transaction costs, such as legal and professional fees, relating to various disposal activities.

Restructuring and other operating expenses consist primarily of employee termination benefits. Recognition of costs for employee termination benefits depends on whether employees are required to render service beyond a minimum retention period in order to receive the termination benefits. If employees are required to render service beyond a minimum retention period in order to receive the termination benefits, costs are recognized ratably over the applicable future service period. Otherwise, costs are recognized when the Company has committed to a restructuring plan and has communicated those actions to employees. Employee termination benefits covered by existing benefit arrangements are recognized when the Company has committed to a restructuring plan and the termination benefits are probable and estimable.

 

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Impairment of Long-Lived Assets

Impairment of long-lived assets includes impairments recognized on certain property and equipment and acquired intangibles as a result of lower than anticipated operating results and a deterioration in projected results. For purposes of determining the impairment, we relied on the income approach utilizing discounted cash flows to arrive at fair value.

Income (loss) from Equity Investments, Net

Income (loss) from equity investments, net includes changes in the fair value of certain equity method investments for which we elect to apply fair value accounting or at the net asset value, our proportionate share of equity method investee income or loss for certain equity method investments, and gains and losses on other marketable and non-marketable securities. Our proportionate share of income or loss from equity method investments accounted for under the equity method under GAAP and is recognized in the quarter following the quarter in which such income or loss is recognized by our investee.

Interest Income, Net

Interest income consists primarily of interest received on cash and cash equivalents, short-term investments that we hold with various financial institutions, and loans receivable. Interest expense consists primarily of interest on finance leases.

Other Non-Operating Income (Loss), Net

Other non-operating income (loss), net consists of one-time gains and losses and other miscellaneous income and expense items unrelated to our core operations, including gains or losses arising from changes in the fair value of derivative financial instruments, gains or losses on realized and unrealized foreign exchange contracts and changes in the fair value of convertible loans receivable.

Income Tax Expense

We account for income taxes using the asset and liability method under GAAP, whereby deferred income taxes are recognized for the tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Income tax expense reflects income earned and taxed, in jurisdictions in which we conduct business, which mainly include U.K. and U.S. federal and state income taxes. We benefit from the U.K.’s “patent box” regime, which allows certain profits attributable to revenue from patented products (and other qualifying income) to be taxed at an effective corporation tax rate of 10%.

 

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Results of Operations

The following table sets forth the components of continued operations from our consolidated income statements and such data as a percentage of total revenue on an absolute basis, for the periods indicated:

 

    For the Fiscal Year Ended March 31,     For the Fiscal Quarter Ended June 30,  

(in millions, except percentages)

  2023     % of
revenue
    2022     % of
revenue
    2021     % of
revenue
       2023        % of
   revenue   
       2022        % of
  revenue  
 

Revenue:

                   

Revenue from external customers

  $ 2,025       76   $ 2,219       82   $ 1,579       78   $ 535       79   $ 524       76

Revenue from related parties

    654       24     484       18     448       22     140       21     168       24
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total revenue

    2,679       100     2,703       100     2,027       100     675       100     692       100
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Cost of sales

    (106     4     (131     5     (145     7     (31     5     (25     4
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Gross profit

    2,573       96     2,572       95     1,882       93     644       95     667       96
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Operating expenses:

                   

Research and development

    (1,133     42     (995     37     (814     40     (337     50     (218     32

Selling, general and administrative

    (762     28     (897     33     (826     41     (196     29     (153     22

Impairment of long-lived assets

    —         0     (21     1     (3     0     —         0     —         0

Disposal, restructuring and other operating expenses, net

    (7     0     (26     1     —         0     —         0     (2     0
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total operating expense

    (1,902     71     (1,939     72     (1,643     81     (533     79     (373     54
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Operating income

    671       25     633       23     239       12     111       16     294       42

Income (loss) from equity investments, net

    (45     2     141       5     476       23     (7     1     (14     2

Interest income, net .

    42       2     2       0     2       0     24       4     2       0

Other non-operating income (loss), net

    3       0     10       0     (20     1     (1     0     4       1
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Income from continuing operations before income taxes

    671       25     786       29     697       34     127       19     286       41
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Income tax expense

    (147     5     (110     4     (153     8     (22     3     (61     9
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Net income from continuing operations

  $ 524       20   $ 676       25   $ 544       27   $ 105       16   $ 225       33
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

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Comparison of Performance for the Fiscal Quarters Ended June 30, 2023 and 2022

Total revenue

 

     For the Fiscal Quarter Ended June 30,     Period-Over-
Period
Change
 

(in millions, except percentages)

   2023      % of Revenue     2022      % of Revenue     2023 to 2022
% Change
 

Revenue from external customers:

   $ 535        79   $ 524        76     2

License and Other Revenue

   $ 180        27   $ 147        21     22

Royalty Revenue

   $ 355        53   $ 377        54     (6 %) 

Revenue from related parties

   $ 140        21   $ 168        24     (17 %) 

License and Other Revenue

   $ 95        14   $ 111        16     (14 %) 

Royalty Revenue

   $ 45        7   $ 57        8     (21 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total revenue

   $ 675        100   $ 692        100     (2 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total revenue was $675 million and $692 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. License and other revenue was $275 million and $258 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. The increase in license and other revenues was primarily driven by new licensing deals as well as renewals of our existing license arrangement by customers to gain access to the latest versions of our technology IPs. Royalty revenue was approximately $400 million and approximately $434 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. The decrease in royalty revenue was driven primarily by the macroeconomic slowdown and lower shipments to normalize inventory levels.

Revenue from external customers increased by $11 million during the fiscal quarter ended June 30, 2023 as compared to the fiscal quarter ended June 30, 2022, driven primarily by a $33 million increase in license and other revenue, which was partially offset by a $22 million decrease in royalty revenue. Revenue from related parties decreased by $28 million during the fiscal quarter ended June 30, 2023 as compared to the fiscal quarter ended June 30, 2022, primarily driven by a $16 million decrease in license and other revenue and a $12 million decrease in royalty revenue as a result of trade protection and national security policies of the U.S. and PRC governments, which adversely affected PRC semiconductor suppliers and customers.

During the fiscal quarters ended June 30, 2023 and 2022 revenue from sales to customers outside of the U.S. accounted for approximately 57% and approximately 62% of total revenue, respectively. Less than 2% of our total revenue is denominated in currencies other than U.S. dollars, and the impact of changes in foreign exchange rates on our revenues and results of operations for the fiscal quarters ended June 30, 2023 and 2022 was immaterial.

Cost of sales

 

     For the Fiscal Quarter Ended
June 30,
    Period-Over-
Period
Change
 

(in millions, except percentages)

   2023     % of
revenue
    2022     % of
revenue
    2023 to 2022
% Change
 

Cost of sales

   $ (31     5   $ (25     4     24

Cost of sales were $31 million and $25 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. Cost of sales increased by $6 million during the fiscal quarter ended June 30, 2023 as compared to the fiscal quarter ended June 30, 2022, primarily due to increases in employee share-based compensation, professional service fees, and activities associated with professional and design services.

 

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Research and development

 

     For the Fiscal Quarter Ended
June 30,
    Period-Over-
Period
Change
 

(in millions, except percentages)

   2023     % of
revenue
    2022     % of
revenue
    2023 to 2022
% Change
 

Research and development

   $ (337     50   $ (218     32     55

Research and development expenses were $337 million and $218 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. Research and development expenses increased by $119 million during the fiscal quarters ended June 30, 2023 as compared to the fiscal quarter ended June 30, 2022, due to increased investments in next generation of products. The increase was primarily due to employee share-based compensation, salaries and related expenses due to headcount increases from hiring as well as increases in cloud engineering expenses, including cloud services, depreciation, and allocated facility overheads, partially offset by increases in research and development tax credits and gains from cash flow hedge activity.

Selling, general and administrative

 

     For the Fiscal Quarter Ended
June 30,
    Period-Over-
Period
Change
 

(in millions, except percentages)

   2023     % of
revenue
    2022     % of
revenue
    2023 to 2022
% Change
 

Selling, general and administrative

   $ (196     29   $ (153     22     28

Selling, general and administrative expenses were $196 million and $153 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. Selling, general and administrative expenses increased by $43 million during the fiscal quarter ended June 30, 2023 as compared to the fiscal quarter ended June 30, 2022, primarily due to increases in employee share-based compensation, public company readiness costs, professional service expenses and related charges, legal fees, and provision for current expected loss on accounts receivable and were partially offset by decreases in sales commission expenses, employee related bonus awards, lease rental costs and gains from cash flow hedge activity.

Disposal, restructuring and other operating expenses, net

 

     For the Fiscal Quarter Ended
June 30,
    Period-Over-
Period
Change
 

(in millions, except percentages)

   2023      % of
revenue
    2022     % of
revenue
    2023 to 2022
% Change
 

Disposal, restructuring and other operating expenses, net

   $ —          0   $ (2     0     (100 )% 

Disposal, restructuring and other operating expenses, net were zero million and $2 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. Disposal, restructuring and other operating expenses, net decreased by $2 million for the fiscal quarter ended June 30, 2023 as compared to the fiscal quarter ended June 30, 2022, primarily due to a decrease in restructuring activities. Restructuring activities were completed in the first two quarters of the fiscal year ended March 31, 2023 for the restructuring plan announced in March 2022.

 

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Income (loss) from equity investments, net

 

     For the Fiscal Quarter Ended
June 30,
    Period-Over-
Period
Change
 

(in millions, except percentages)

   2023     % of
revenue
    2022     % of
revenue
    2023 to 2022
% Change
 

Income (loss) from equity investments, net

   $ (7     1   $ (14     2     (50 )% 

Income (loss) from equity investments, net was $7 million and $14 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. Loss from equity investments, net decreased by $7 million for the fiscal quarter ended June 30, 2023 as compared to the fiscal quarter ended June 30, 2022, primarily due to a reduction in unrealized losses related to equity method investments accounted for at fair value, and non-marketable securities.

Interest income, net

 

     For the Fiscal Quarter Ended
June 30,
    Period-Over-
Period
Change
 

(in millions, except percentages)

   2023      % of
revenue
    2022      % of
revenue
    2023 to 2022
% Change
 

Interest income, net

   $ 24        4   $ 2        0     1,100

Interest income, net was $24 million and $2 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. Interest income, net increased by $22 million for the fiscal quarter ended June 30, 2023 as compared to the fiscal quarter ended June 30, 2022, primarily due to favorable interest rate yields recognized on short-term investments and cash equivalents.

Other non-operating income (loss), net

 

     For the Fiscal Quarter Ended
June 30,
    Period-Over-
Period
Change
 

(in millions, except percentages)

   2023     % of
revenue
    2022      % of
revenue
    2023 to 2022
% Change
 

Other non-operating income (loss), net

   $ (1     0   $ 4        1     (125 )% 

Other non-operating income (loss), net was $(1) million and $4 million for the fiscal quarters ended June 30, 2023 and 2022, respectively. Other non-operating income (loss), net decreased by $5 million for the fiscal quarter ended June 30, 2023 as compared to the fiscal quarter ended June 30, 2022, primarily due to realized and unrealized foreign exchanges losses, partially offset by realized and unrealized foreign exchange gains, along with fair value changes in derivative financial instruments and convertible loans receivables.

Income tax expense

 

     For the Fiscal Quarter Ended
June 30,
    Period-Over-
Period
Change
 

(in millions, except percentages)

   2023     % of
revenue
    2022     % of
revenue
    2023 to 2022
% Change
 

Income tax expense

   $ (22     3   $ (61     9     (64 )% 

For the fiscal quarters ended June 30, 2023 and 2022, income tax expense was $22 million and $61 million, respectively. The income tax expense as a percentage of income before taxes was 17% and 21% for the fiscal quarters ended June 30, 2023 and 2022, respectively.

 

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Income tax expense decreased compared to the same period last fiscal year primarily due to lower pre-tax income and a reduction in irrecoverable overseas withholding taxes. The effective tax rate decreased compared to the same period last fiscal year primarily due to a reduction in irrecoverable overseas withholding taxes. Although the statutory rate in the United Kingdom increased to 25% from 19%, there was an increase in patent box benefit, which offset the increase.

On August 16, 2022, the Inflation Reduction Act of 2022 was enacted into U.S. law. The legislation includes a new corporate alternative minimum tax (“CAMT”) of 15% on the adjusted financial statement income (“AFSI”) of corporations with average AFSI exceeding $1.0 billion over a three-year period. The CAMT is effective for the Company for the fiscal year ending March 31, 2024. The Company has assessed the potential impact of the CAMT and does not expect the CAMT will have a material impact on the financial statements or results of operations.

Comparison of Performance for the Fiscal Years Ended March 31, 2023, 2022 and 2021

Total revenue

 

    For the Fiscal Year Ended March 31,     Period-Over-Period
Change
 

(in millions, except percentages)

  2023     % of
revenue
    2022     % of
revenue
    2021     % of
revenue
    2023 to 2022
% Change
    2022 to 2021
% Change
 

Revenue from external customers:

  $ 2,025       76   $ 2,219       82   $ 1,579       78     (9 %)      41

License and Other Revenue

  $ 569       21   $ 902       33   $ 574       28     (37 %)      57

Royalty Revenue

  $ 1,456       55   $ 1,317       49   $ 1,005       50     11     31

Revenue from related parties

  $ 654       24   $ 484       18   $ 448       22     35     8

License and Other Revenue

  $ 435       16   $ 239       9   $ 140       7     82     71

Royalty Revenue

  $ 219       8   $ 245       9   $ 308       15     (11 %)      (20 %) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

  $ 2,679       100   $ 2,703       100   $ 2,027       100     (1 %)      33
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2023 compared to 2022

Total revenue was $2,679 million and $2,703 million for the fiscal years ended March 31, 2023 and 2022, respectively. License and other revenue was $1,004 million and $1,141 million for the fiscal years ended March 31, 2023 and 2022, respectively. The decrease in license and other revenue primarily was due to marginal decrease in size and timing of new licensing deals. License revenue may potentially be volatile across periods due to variability of large deals between fiscal years, which historically have had a large license revenue impact. Royalty revenue was approximately $1,675 million and approximately $1,562 million for the fiscal years ended March 31, 2023 and 2022, respectively. The increase in royalty revenue was driven primarily by continued organic growth as a result of higher net ASP per chip and increased adoption of our products by customers in their chips.

Revenue from external customers decreased by $194 million during the fiscal years ended March 31, 2023 as compared to the fiscal year ended March 31, 2022, driven primarily by a $333 million decrease in license and other revenue, which was partially offset by a $139 million increase in royalty revenue. Revenue from related parties increased by $170 million during the fiscal years ended March 31, 2023 as compared to the fiscal year ended March 31, 2022, primarily driven by a $196 million increase in license and other revenue, which was partially offset by a $26 million decrease in royalty revenue as a result of economic and national security issues currently ongoing in the PRC.

During the fiscal years ended March 31, 2023 and 2022, revenue from sales to customers outside of the U.S. accounted for approximately 59% and approximately 54% of total revenue, respectively. Less than 2% of our total revenue is denominated in currencies other than U.S. dollars, and the impact of changes in foreign exchange rates on our revenues and results of operations for the fiscal years ended March 31, 2023, 2022 and 2021 was immaterial.

 

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2022 compared to 2021

Total revenue was $2,703 million and $2,027 million for the fiscal years ended March 31, 2022 and 2021, respectively. License and other revenue was $1,141 million and $714 million for the fiscal years ended March 31, 2022 and 2021, respectively. The increase in license and other revenue primarily was due to an increase in licensing revenue from three high-value license agreements and as we introduced new approaches to licensing certain of our products to provide more customers with more reasons and more ways to license. Royalty revenue was approximately $1,562 million and approximately $1,313 million for the fiscal years ended March 31, 2022 and 2021, respectively. The increase in royalty revenue was driven primarily by continued organic growth as a result of higher net ASP per chip and increased adoption of our products by customers in their chips.

Revenue from external customers increased by $640 million during the fiscal years ended March 31, 2022 as compared to the fiscal year ended March 31, 2021, driven primarily by a $328 million increase in license and other revenue and a $312 million increase in royalty revenue. Revenue from related parties increased by $36 million during the fiscal years ended March 31, 2022 as compared to the fiscal year ended March 31, 2021, primarily driven by a $99 million increase in license and other revenue, which were partially offset by a $63 million decrease in royalty revenue as a result of trade protection and national security policies of the U.S. and PRC governments, which adversely affected PRC semiconductor suppliers and customers.

During the fiscal years ended March 31, 2022 and 2021 revenues from sales to customers outside of the U.S. accounted for approximately 54% and approximately 58% of total revenue, respectively. Less than 2% of our total revenue is denominated in currencies other than U.S. dollars, and the impact of changes in foreign exchange rates on our revenues and results of operations for the fiscal years ended March 31, 2022 and 2021 was immaterial.

Cost of sales

 

     For the Fiscal Year Ended March 31,     Period-Over-Period
Change
 

(in millions, except percentages)

   2023     % of
revenue
    2022     % of
revenue
    2021     % of
revenue
    2023 to 2022
% Change
    2022 to 2021
% Change
 

Cost of sales

   $ (106     4   $ (131     5   $ (145     7     (19 %)      (10 %) 

2023 compared to 2022

Cost of sales were $106 million and $131 million for the fiscal years ended March 31, 2023 and 2022, respectively. Cost of sales decreased by $25 million during the fiscal year ended March 31, 2023 as compared to the fiscal year ended March 31, 2022, primarily due to decreases in activities associated with professional and design services, and employee and related retention awards, offset by increases in employee share-based compensation.

2022 compared to 2021

Cost of sales were $131 million and $145 million for the fiscal years ended March 31, 2022 and 2021, respectively. Cost of sales decreased by $14 million during the fiscal year ended March 31, 2022 as compared to the fiscal year ended March 31, 2021, primarily due to decreases in activities associated with professional and design services as well as a decrease in developed technology intangibles asset amortization due to certain assets coming to end of life. This decrease was partially offset by general increases in salaries and related expenses, professional services expenses, among other miscellaneous expenses.

Research and development

 

     For the Fiscal Year Ended March 31,     Period-Over-Period
Change
 

(in millions, except percentages)

   2023     % of
revenue
    2022     % of
revenue
    2021     % of
revenue
    2023 to 2022
% Change
    2022 to 2021
% Change
 

Research and development

   $ (1,133     42   $ (995     37   $ (814     40     14     22

 

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2023 compared to 2022

Research and development expenses were $1,133 million and $995 million for the fiscal years ended March 31, 2023 and 2022, respectively. Research and development expenses increased by $138 million during the fiscal year ended March 31, 2023 as compared to the fiscal year ended March 31, 2022, due to increased investments in next generation of products. The increase was due to general increases in salaries and related expenses and share-based compensation, increases in cloud engineering expenses, including cloud services, depreciation, and allocated facility overheads, partially offset by decreases in employee related retention awards and increases in research and development tax credits.

2022 compared to 2021

Research and development expenses were $995 million and $814 million for the fiscal years ended March 31, 2022 and 2021, respectively. Research and development expenses increased by $181 million during the fiscal year ended March 31, 2022 as compared to the fiscal year ended March 31, 2021, primarily due to general increases in salaries and related retention awards, partially offset by decreases in government research grant income from the Innovate U.K. grant due to a reduction in the relevant qualifying expenses for which the Innovate U.K. grant is intended to compensate.

Selling, general and administrative

 

    For the Fiscal Year Ended March 31,     Period-Over-Period
Change
 

(in millions, except percentages)

  2023     % of
revenue
    2022     % of
revenue
    2021     % of
revenue
    2023 to 2022
% Change
    2022 to 2021
% Change
 

Selling, general and administrative

  $ (762     28   $ (897     33   $ (826     41     (15 %)      9

2023 compared to 2022

Selling, general and administrative expenses were $762 million and $897 million for the fiscal years ended March 31, 2023 and 2022, respectively. Selling, general and administrative expenses decreased by $135 million during the fiscal year ended March 31, 2023 as compared to the fiscal year ended March 31, 2022, primarily due to decreases in salaries and related expenses and employee retention awards, due in part to restructuring activities announced in March 2022, along with decreases in provisions for current expected credit losses on accounts receivable and recoveries, decreases in depreciation and amortization, general cloud service expenses, and allocated facility overheads, partially offset by increases in employee share-based compensation, public company readiness costs, professional services expenses and related charges, litigation provisions and related legal fees, travel expenses, and other miscellaneous items.

2022 compared to 2021

Selling, general and administrative expenses were $897 million and $826 million for the fiscal years ended March 31, 2022 and 2021, respectively. Selling, general and administrative expenses increased by $71 million during the fiscal year ended March 31, 2022 as compared to the fiscal year ended March 31, 2021, primarily due to general increases in salaries and related retention awards, increases in professional services expenses and related charges, cloud infrastructure costs, and provisions for current expected credit losses on accounts receivable. These increases were partially offset by decreases in acquisition related costs, depreciation and amortization and other miscellaneous items.

 

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Impairment of long-lived assets

 

     For the Fiscal Year Ended March 31,     Period-Over-Period
Change
 

(in millions, except percentages)

   2023      % of
revenue
    2022     % of
revenue
    2021     % of
revenue
    2023 to 2022
% Change
    2022 to 2021
% Change
 

Impairment of long-lived assets

   $ —          0   $ (21     1   $ (3     0     (100 )%      600

2023 compared to 2022

Impairment of long-lived assets was zero and $21 million for the fiscal years ended March 31, 2023 and 2022, respectively. Impairment of long-lived assets decreased by $21 million during the fiscal year ended March 31, 2023 as compared to the fiscal year ended March 31, 2022, as there was no impairment of property and equipment or operating lease right-of-use assets in the fiscal year ended March 31, 2023.

2022 compared to 2021

Impairment of long-lived assets was $21 million and $3 million for the fiscal years ended March 31, 2022 and 2021, respectively. Impairment of long-lived assets increased by $18 million during the fiscal year ended March 31, 2022 as compared to the fiscal year ended March 31, 2021, primarily related to impairment of certain property and equipment, intangible assets and operating lease right-of-use assets.

Disposal, restructuring and other operating expenses, net

 

    For the Fiscal Year Ended March 31,     Period-Over-Period
Change
 

(in millions, except percentages)

  2023     % of
revenue
    2022     % of
revenue
    2021     % of
revenue
    2023 to 2022
% Change
    2022 to 2021
% Change
 

Disposal, restructuring and other operating expenses, net

  $ (7     0   $ (26     1   $ —         0     (73 )%      100

2023 compared to 2022

Disposal, restructuring and other operating expenses, net were $7 million and $26 million for the fiscal years ended March 31, 2023 and 2022, respectively. Disposal, restructuring and other operating expenses, net decreased by $19 million for the fiscal year ended March 31, 2023 as compared to the fiscal year ended March 31, 2022, primarily due to a decrease in restructuring activities, which was partially offset by an increase in disposal expenses. Restructuring activities were completed in the first two quarters of the fiscal year ended March 31, 2023 for the restructuring plan announced in March 2022.

2022 compared to 2021

Disposal, restructuring and other operating expenses, net were $26 million and zero for the fiscal years ended March 31, 2022. Disposal, restructuring and other operating expenses, net increased by $26 million for the fiscal year ended March 31, 2022 as compared to the fiscal year ended March 31, 2021, primarily due to the announcement of a restructuring plan in March 2022 to align our selling, general and administrative workforce with strategic business activities and to improve efficiencies in our operations.

Income (loss) from equity investments, net

 

     For the Fiscal Year Ended March 31,     Period-Over-
Period Change
 

(in millions, except percentages)

   2023     % of
revenue
    2022      % of
revenue
    2021      % of
revenue
    2023 to 2022
% Change
    2022 to 2021
% Change
 

Income (loss) from equity investments, net

   $ (45     2   $ 141        5   $ 476        23     (132 )%      (70 )% 

 

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2023 compared to 2022

Income (loss) from equity investments, net was $(45) million and $141 million for the fiscal years ended March 31, 2023 and 2022, respectively. Income from equity investments, net decreased by $186 million for the fiscal year ended March 31, 2023 as compared to the fiscal year ended March 31, 2022, primarily due to unrealized losses related to equity method investments accounted for at fair value, and non-marketable securities.

2022 compared to 2021

Income from equity investments, net was $141 million and $476 million for the fiscal years ended March 31, 2022 and 2021, respectively. Income from equity investments, net decreased by $335 million for the fiscal year ended March 31, 2022 as compared to the fiscal year ended March 31, 2021, primarily due to unrealized gains related to equity method investments accounted for at fair value, and non-marketable securities.

Interest income, net

 

     For the Fiscal Year Ended March 31,     Period-Over-Period
Change
 

(in millions, except percentages)

   2023      % of
revenue
    2022      % of
revenue
    2021      % of
revenue
    2023 to 2022
% Change
    2022 to 2021
% Change
 

Interest income, net

   $ 42        2   $ 2        0   $ 2        0     2,000     0

2023 compared to 2022

Interest income, net was $42 million and $2 million for the fiscal years ended March 31, 2023 and 2022. Interest income, net increased by $40 million for the fiscal year ended March 31, 2023 as compared to the fiscal year ended March 31, 2022, primarily due to favorable interest rate yields recognized on short-term investments and cash equivalents.

2022 compared to 2021

Interest income, net was $2 million for each of the fiscal years ended March 31, 2022 and 2021. No material changes in interest income or expenses were realized in the fiscal year ended March 31, 2022 as compared to the fiscal year ended March 31, 2021.

Other non-operating income (loss), net

 

     For the Fiscal Year Ended March 31,     Period-Over-Period
Change
 

(in millions, except percentages)

   2023      % of
revenue
    2022      % of
revenue
    2021     % of
revenue
    2023 to 2022
% Change
    2022 to 2021
% Change
 

Other non-operating income (loss), net

   $ 3        0   $ 10        0   $ (20     (1 )%      (70 )%      (150 )% 

2023 compared to 2022

Other non-operating income (loss), net was $3 million and $10 million for the fiscal years ended March 31, 2023 and 2022, respectively. Other non-operating income (loss), net decreased by $7 million for the fiscal year ended March 31, 2023 as compared to the fiscal year ended March 31, 2022, primarily due to realized and unrealized foreign exchanges gains, along with fair value changes in derivative financial instruments, convertible loans receivable, and a gain recognized upon the sale of certain net assets that meets the definition of a business, partially offset by realized and unrealized foreign exchange losses.

 

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2022 compared to 2021

Other non-operating income (loss), net was $10 million and $(20) million for the fiscal years ended March 31, 2022 and 2021, respectively. Other non-operating income (loss), net increased by $30 million for the fiscal year ended March 31, 2022 as compared to the fiscal year ended March 31, 2021, primarily due to realized and unrealized foreign exchanges gains, along with fair value changes in derivative financial instruments and convertible loans receivable, partially offset by realized and unrealized foreign exchange losses.

Income tax expense

 

     For the Fiscal Year Ended March 31,     Period-Over-Period Change  

(in millions, except percentages)

   2023     % of
revenue
    2022     % of
revenue
    2021     % of
revenue
    2023 to 2022 
% Change
    2022 to 2021 
% Change
 

Income tax expense

   $ (147     5   $ (110     4   $ (153     8     34     (28 )% 

2023 compared to 2022

Income tax expense was $147 million and $110 million for the fiscal years ended March 31, 2023 and 2022, respectively. Our effective tax rate for the fiscal years ended March 31, 2023 and 2022 was 22% and 14%, respectively. In the fiscal year ended March 31, 2023, our effective tax rate increased by approximately 8%, primarily due to significant irrecoverable withholding taxes and decreased profits qualifying for the U.K. patent box regime in the fiscal year ended March 31, 2023.

2022 compared to 2021

Income tax expense was $110 million and $153 million for the fiscal years ended March 31, 2022 and 2021, respectively. Our effective tax rate for the fiscal years ended March 31, 2022 and 2021 was 14% and 22%, respectively. In the fiscal year ended March 31, 2022, our effective tax rate decreased by approximately 8%, primarily due to significant unrecoverable withholding taxes as a result of insufficient specific U.K. profits in the fiscal year ended March 31, 2021 and increased profits qualifying for the U.K. patent box regime in the fiscal year ended March 31, 2022.

Quarterly Financial Information

The following table sets forth, for each of the three-month periods indicated, selected financial data from our unaudited consolidated income statements and consolidated balance sheets. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this prospectus.

 

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This data should be read in conjunction with our annual consolidated financial statements and unaudited consolidated interim condensed financial statements and the related notes, all of which are included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results in any future period and the results of a particular quarter or other interim period are not necessarily indicative of the results for a full year.

 

     Three Months Ended  
     March 31,
2022
    June 30,
2022
    September 30,
2022
    December 31,
2022
    March 31,
2023
    June 30,
2023