ARM and SoftBank: Why the UK needs more giant tech takeovers, not less

The problems with the UK's tech industry are bigger than the fate of just one company.
Written by Steve Ranger, Global News Director
Image: Frank Fiscbach

SoftBank's planned acquisition of UK chip designer ARM has already become something of a tech and economics Rorschach test: while some see it as a proof that the UK -- following the Brexit vote -- is still an attractive place for international companies to do business, others see it as the start of a firesale sparked by a rock bottom pound, leading to cries that the government should do more to protect strategic companies like ARM.

For, while the UK's new chancellor cheerfully tweeted " Big vote of confidence in British business", others are less convinced. ARM's founder Herman Hauser, who is now a partner at Amadeus Capital, said that the company was "the proudest achievement of my life", but that the proposed sale to SoftBank "is a sad day for me and for technology in Britain".

ARM has guided many technology decisions, said Hauser, warning "that determination of what comes next for technology will not be decided in Britain anymore but in Japan".

In contrast, ARM CEO Simon Segars said that SoftBank's investment would help ARM develop the technologies necessary to support the Internet of Things and fully autonomous cars.

"That is a non-trivial exercise, it is one that will take time and one that will take investment. SoftBank share our view on where this technology can go and on how long it will take and the level of investment that will be required," he said.

John Abbott, an analyst at 451 Research, made a similar point: "By taking ARM private and putting its considerable financial resources behind it, SoftBank has a chance to significantly speed up ARM's entry into new and emerging markets, such as IoT, automotive, and datacenter technologies. To make headway in these new areas, ARM will need to contribute more core IP so as not to load too much expensive development work onto its partner companies. That will need considerably larger levels of investment."

ARM has been an overnight success three or four decades in the making. Its roots are in the last great tech boom in the UK, back in the days of the BBC Micro and Acorn Computers. It was always a somewhat unusual UK tech company because of its business model: it designs chips but leaves the making and selling of them to other companies.

Still, it was a key element of the Cambridge tech cluster, which is often ignored in favour of its hipper, noisier sibling in London's Shoreditch. Companies like ARM matter, and help create new companies around them.

Still, the argument to stop the sale because ARM is one of the UK's ' crown jewels' seems a tricky one to make. SoftBank has promised that the company's headquarters will remain in the UK and that it will double staffing.

Indeed, one of the big problems with the UK tech scene is a lack of these major deals. The idea being that every time a big company sells (or goes public), it generates a new wave of entrepreneurs with the business experience and the funds to create the next big thing. Big 'exits' are actually what the UK tech scene needs -- and what startups dream of. Stopping that from happening will make the country a less attractive place for entrepreneurs to set up.

The bigger problem is not the fate of one company, but that the UK simply does not have enough companies like ARM. We have failed to repeat the success of the 1980s, which saw a huge explosion of UK innovation. After ARM is bought, it's hard to say which is the next biggest and most influential independent UK tech company.

True, in the last few years, London has seen the emergence of a start-up scene, and there are a few financial tech companies and tech security companies emerging at the moment, but they are tiny compared to ARM. Much more needs to be done if the UK wants to compete with the US -- or even just keep up with Germany or France.

Our focus should not be on protecting the giants we have but on making sure there are new ones to replace them.

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