Strong ARM may benefit from Brexit shake-up

ARM is one of the world’s leading microchip suppliers. Their chips find their way into everything from smartphones to washing machines and cars. The firm has enjoyed robust growth in recent years, propelled in large part by the mobile market, but the “internet of things” provides opportunities in the future.

Last week, the Japanese conglomerate Softbank announced a takeover bid for ARM, for 1700p per share, a 43 per cent premium to the previous closing price of 1189p. Following PM Theresa May’s vow to defend British companies from foreign takeover, Softbank says it will maintain the firm’s headquarters in Cambridge, and double its UK workforce over the next five years. The deal has been claimed as a vote of confidence in the UK economy following the EU referendum, and an example of how a weaker pound could encourage foreign investment. That may or may not prove to be the case, but ARM is an unlikely bellwether for a stampede of M&A activity after Sterling’s valuation.

ARM is no doubt a great British success story, but the reality is less than 1 per cent of its revenues come from the UK. Like other firms with substantial foreign revenue streams, the falling pound has been accompanied by a strongly rising share price. Indeed, when Softbank announced its takeover bid, ARM was actually 2 per cent more expensive in Japanese Yen than on the day of the referendum. However, UK investors have seen the value of their stake rise 67 per cent since referendum day due to those foreign earnings, and the takeover bid.

ARM was floated in April 1998, during the tech boom. Investors would have seen a £1,000 investment rise to over £23,000 within just two years. However, they would then have witnessed a 95 per cent share price collapse in the following three years as the tech bubble burst. If they had held on to the present day, they would be sitting on £47,000 worth of shares.

ARM has been a key beneficiary of the expansion of the smartphone market. The future looks bright, with mobile computing forecast to grow for years to come, and ARM also stands to benefit from demand for microchips to power the devices which constitute the growing “internet of things”.

“This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”