How SoftBank's costly bet on IoT at Arm backfired and distracted the company from the much bigger data center market

UK chip designer changes strategy ahead of planned float with renewed focus on lucrative server market — As Masayoshi Son tried to persuade investors of the wisdom …

Financial Times 2022-02-15

Context & Ripple Effects

Arm's data-center pivot is the endgame of a long identity struggle under SoftBank ownership. In 2020 it tried to shed its two IoT businesses via a spinoff to SoftBank, then reversed course a month later and kept them distinct from the core IP business — leaving the distraction in place rather than removing it.

The stakes are SoftBank's own: by early 2023 the group's future explicitly rested on a successful Arm IPO and a Vision Fund turnaround after a run of disastrous bets, which is why Masayoshi Son needed the chip designer's story to point at the lucrative server market rather than the IoT bet that backfired.

First-order effects

Arm enters its planned float pitching investors on server and data-center licensing growth instead of IoT, directly repositioning its valuation story around the highest-value silicon market.
SoftBank gets a cleaner pre-IPO narrative for Arm, addressing the investor skepticism Son faced over the conglomerate's strategy.

Second-order effects

Incumbent server-chip players face a better-capitalized Arm pushing harder into their core market just as SoftBank doubles down elsewhere — its AI investment outlay more than doubled to $8.9B within two years of this pivot.
The IoT businesses Arm retained but deprioritized become stranded assets inside the group, with SoftBank effectively carrying the cost of the failed diversification while chasing new bets like its later talks over Intel's foundry business.

Third-order effects

If the pattern holds, chip designers under financial sponsors will keep shedding edge/IoT ambitions to concentrate on cloud and AI workloads, where licensing economics justify valuations.
Son's sequence — IoT misstep, IPO-dependent recovery, then ever-larger infrastructure wagers — points toward SoftBank becoming a compute-infrastructure holding company rather than a diversified tech investor.

The trend: Chip design is consolidating around data-center and AI compute as the value pool, with owners unwinding edge-IoT diversification to fund the pivot.

Discussion

@anshelsag @anshelsag on x
Interesting take. Not sure I agree. Arm has a considerable position in servers, too. https://www.ft.com/...
@mikethebbop Ira Michael Blonder on x
Respectfully disagree w/ “the concept of connecting ... industrial devices 2 the internet has been much slower than anticipated”. The ARM problem is different (will be discussed in the next issue of my substack newsletter. DM me your email 2 sign up): https://www.ft.com/...
@muradahmed Murad Ahmed on x
Softbank's Masayoshi Son made two big bets after buying UK chip designer Arm. Investing heavily in the “internet of things” and selling to rival Nvidia. Both have failed. So what next for the business? Analysis in @FT by @AnnaSophieGross and @Tim https://www.ft.com/...
@carnage4life @carnage4life on x
We've had many trends follow a similar trend of massive hype and VC investment as the next big thing for consumers then fizzle, from drone delivery to micro mobility (Jump/Lime bikes). The failures usually revolve around not solving user problems better than existing solutions.
@annasophiegross Anna Gross on x
When Son spearheaded the $31bn purchase of Arm, he saw it as a wager on the IoT concept. Five years later, it has become increasingly clear that this gamble was a costly misadventure. With @tim and stellar editing by @muradahmed https://www.ft.com/...
@carnage4life @carnage4life on x
The Internet of Things is another market where there was a lot of hype and investment but turned out not to find product market fit. We all own a few more “smart” or internet connected devices like Rings & Echos but overall it's been a bust. https://www.ft.com/...
@carnage4life @carnage4life on x
IoT in particular fizzled when it became clear having an app for all your household appliances and the inevitable complexity adds little value to your consumer experience. The next technology wave to go through this will be web3. It has all of the same characteristics.

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