Deeply unconvincing argument about ARM

No, really, no:

On the face of it, Mr Son is paying a fabulous price for ARM – a mouth-watering 60 times last year’s earnings, and a near 50pc premium to the company’s pre-bid value. But if he’s right in his vision, then it’s going to look a bargain ten years from now. Already, there are mutterings that he is underpaying, amid reports of strong sales growth.

Forgive the terrible pun, suggested by a well known City fund manager who won’t forgive me if I attribute it to him, but is SoftBank paying an arm a leg, or is ARM being sold for a son?

It will be a while before we know, yet it seems to be one of those other British deficiencies that we are good at innovation and start-ups but atrocious when it comes to developing them into global players. Too often companies are sold before they properly get going.

We really cannot use the example of ARM to show that we don’t build companies into world beaters. Because ARM is a world beater. So it’s an example of entirely the contrary, that we can and do build companies into world beaters. This is also wrong:

One of the things Theresa May promises to address in a still somewhat ill-defined and unconvincing agenda for revitalising the UK economy is Britain’s productivity deficit. This is of course the holy grail of successive post-war UK governments, and whereas some have done better than others, none has so far managed any more than limited progress in closing the productivity gap. So we must wish her luck.

One place she could usefully start is in taking on the endemic problem of “short-termist” thinking among UK investors and managers, a mind set that is deeply ingrained in British corporate, investment and banking culture.

I’ve long thought this a major part of Britain’s productivity challenge, and I’m happy to see that the City veteran and corporate financier, Sir Simon Robertson, a former stalwart of Kleinwort Benson and Goldman Sachs, agrees with me.

Measurements of productivity have sweet fuck all to do with who owns a company. they’re measures of the output (per hour normally) of people working within the British economy.

Who owns, who gets the profits, makes completely sod all difference to productivity measures. Productivity is measured by the hours those 3,000 around Cambridge put in as against the value of their output. And that’s it. British productivity will change by not one whit or iota as ownership moves from roughly 43% US, 35% UK, balance European to 100% Japanese.

It’s simply trying to measure things using entirely the wrong ruler.

19 thoughts on “Deeply unconvincing argument about ARM”

  1. Something like 80% of the world owns cellphones. Many of those are smartphones that people now think are good enough for their needs (mine is now close to 3 years old). iPad sales are down. Smart watches haven’t taken off.

    As for Internet of Things: how many people do you know with app-controlled lights or Nest thermostats? I know one person with a Nest, and I mostly know nerds. And if we get household devices with internet, how many is that per year? How often do you buy a new fridge or oven? Is “internet-enabled” a selling point?

    Personally, I think consumer computing is about done. Sure, we’ll replace iPads when they die, but few people are upgrading PCs, iPads, or Smart TVs. And I think selling out at 50% over market price was a smart move.

  2. ARM is probably being sold on the cheap, though. Were it not for the various competitiveness bodies they’d have to force their way past, Apple would no doubt be paying a lot more. Or Samsung. Or Qualcomm. Maybe even Intel. Their position in the market as a licensing shop rather than as a manufacturing shop puts a glass ceiling on the market capitalisation of the company and leaves them open to takeover bids the likes of which Apple and Samsung will never have to worry about whilst they remain successful.

    But his bullshit on world beaters and productivity… comical.

  3. @Tim Almond: You won’t really see a wholesale change in the market for internet-connected consumer devices until AI matures to a point where it makes a material difference to the bottom line in people’s household bills, which will happen, but it hasn’t happened yet.

  4. One of the reasons ARM is so successful is that it was developed by engineers – Sophie and Steve – without managers interfering with, or even knowing about, what they were doing.

  5. Tim, I think your second-to-last paragraph should not be part of the quoted block. Don’t think that Mr Warner and the Telegraph would use such language 🙂

  6. Tim Almond: all new cars sold in Europe from 2018 (IIRC) will have to be connected. (And many car manufacturers are connecting them voluntarily anyway). That’s a lot of cars so a lot of modules.

    I personally also have a home alarm system that is connected, and a smart meter for my electricity connection and another one for my gas connection.

    IoT is not only about consumer demand for gadgets but also about manufacturers pushing devices out to people because the modules (and the connectivity) is cheap and it makes their life easier.

    Granted, many of these IoT modules are very simple (they have to be to be cheap enough) and may not be the target market of ARM.

    Selling at 50% over market price tends to be a good idea for the sellers. It may still be a good idea for the buyers if they can create more value through synergies, better management etc. It may also be a bad idea for the buyers but then that’s their problem

  7. Surely the productivitiy of the British economy overall is held down (like every other “developed” economy by all the army of wasters shysters and general deadweight – tax inspectors, customs men, health and safey inspectors, most local government employees – the list is fucking endless of people who cost a lot by themselves and who add massive amounts of cost to others, for no material benefit whatsoever. Nobody in their right mind would buy what they sell.

  8. It will be a while before we know, yet it seems to be one of those other British deficiencies that we are good at innovation and start-ups but atrocious when it comes to developing them into global players.

    And when we do – such as with Vodafone – we howl that they are not paying enough tax and that they are evil capitalists.

  9. Or Ineos, John Lewis, McLaren, Laing O’Rourke, JCB, Virgin, Iceland, Dixons, Dyson, Robert McAlpine, Formula One, Poundland, Harrods, Ar-Fucking-Cadia… the list of evil capitalist bastards not paying enough tax is endless!

  10. @TimWorstall:
    “Measurements of productivity have sweet fuck all to do with who owns a company. they’re measures of the output (per hour normally) of people working within the British economy.

    Who owns, who gets the profits, makes completely sod all difference to productivity measures.”

    So what’s wrong with a one-off nationalisation of the entire economy?

  11. @ Richard Allen:
    Sure you are tongue in cheek there, but of course it’s the owners of the business who ultimately determine how it invests, what it’s future strategy is, how it responds to market pressures – all the stuff that governments have a proven record of being completely sh!t at.
    Which doesn’t change the point that too many UK businesses, aided and abetted by mad government schemes, are hopelessly addicted to using cheap part time & imported labour instead of actually investing in technology.

  12. I think that Softbank paid too much for ARM. It may be true that there’s potential in IoT. There are lot of potential security problems though, and few people in IoT are qualified to address them. As far as processors are concerned, there’s no guarantee that ARM will be dominant, though I expect it will be important. Many of the IoT applications that people are talking about now don’t require a lot of processing power.

    In many ways it’s the best situation. A foreign buyer has over-paid for a company, leaving the shareholders (who are probably mainly domestic) richer. The buyer has pledged to continue the business as is, and even expand. I fully expect them to do that because they don’t own any competitor companies.

  13. Tim, you are ignoring the rule that no journalist should ever use the word “productivity” accurately.

  14. So what’s wrong with a one-off nationalisation of the entire economy?

    Well, if you want to be that stupidly mono-focused, it wouldn’t _immediately_ damage productivity.

    But the problem with nationalised industries is the incentives of politicians and civil servants are rarely aligned to the necessary processes for developing and running successful businesses. Particularly the churn that makes the overall economy improve – BHS falls over, H&M spring up. The political pressure will usually (even almost always) be to preserve the status quo in aspic.

    Oh, and the interference. We currently don’t have a Diversity Officer, a 5-a-day co-ordinator, or a union pilgrim. I can’t see that surviving after we are nationalised. And I can’t see us surviving with the productive staff having to bear the cost of three additional pointless twats.

  15. @John Davis
    @Surreptitious Evil

    I’m sure you two believe that ownership has effects on productivity, as do I. But Timmy just said that he didn’t.

  16. I think what Tim is saying is that when person A sells a business to person B the productivity does not instantly change. This is true whether person B is a different nationality from person A, or even a government.

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