SoftBank Group Corp. has acquired Graphcore, a company specializing in Intelligence Processing Units (IPUs) for AI, making it a wholly owned subsidiary. Graphcore’s technology aimed to compete with Nvidia’s GPUs but struggled with execution and market fit, resulting in low sales and significant financial losses. The acquisition is expected to integrate Graphcore more closely with Arm, another SoftBank subsidiary, to bolster AI technology development. The deal, reportedly valued at around $520 million, reflects a substantial loss for previous investors but aims to leverage synergies in AI to drive future growth.
![Graphcore processor](https://www.jonpeddie.com/wp-content/uploads/2024/07/Softbank_Graphcore_001.png)
What do we think? When we previously covered Graphcore, we felt there were opportunities for Graphcore in inferencing and AI-as-a-Service (AIaaS) but that the clock was running down. We hold to that line, with the proviso that we see a significant challenge on the horizon coming from innovations in photonic computing, reversible computing, and more. These moonshot technologies are a threat to GPUs in general, but nascent AI architectures like Graphcore’s IPU are even more so.
Graphcore failed to make use of its first mover advantage, with just $2.7 million in sales and a pre-tax loss of $205 million in 2022. The company’s main issue from our point of view is execution across multiple dimensions: yield was low, sales undermined by software maturity, and cloud initiatives very slow to win customers. The architecture was interesting, but Nvidia is a very hard competitor to displace. Ultimately, it could have worked out, but some bets fail.
In new hands, there may still be potential, but we think Graphcore as a product business is just too late to market. Their product market fit seems to me to be heading towards its expiration date.
Of course, we don’t yet know SoftBank’s strategy for Graphcore or what the Arm connection will bring. If it were our skin in this game, we would be looking for a radical shift in Graphcore, focusing it on R&D rather than product manufacturing, an area where the results have so far been negligible, with low yields and low sales. However, it seems more likely that Graphcore will be a way for Arm to play more closely in AI but still at Arm’s length (sorry!), thereby being able to claim to partners like Nvidia that it’s all Graphcore. That will be a tricky sleight of hand to pull off.
Graphcore becomes a subsidiary of SoftBank
Graphcore announced that it has been acquired by SoftBank Group Corp on July 11, 2024. Under the deal, Graphcore becomes a wholly owned subsidiary of SoftBank.
Graphcore aimed to differentiate itself in the AI market by offering an alternative to GPUs, most notably those from Nvidia. The company’s IPU (Intelligence Processing Unit) is designed to process information more like a human brain does and is said to be more efficient and cost-effective than GPUs. However, early benchmarks and performance comparisons between Graphcore’s IPUs and Nvidia’s GPUs did not show a clear winner for all use cases, and while Nvidia has continued a relatively rapid cadence of product releases and performance leaps, Graphcore’s product delivery stalled, with sources telling us that their next generation, named the Good computer, is far from ready.
If you aren’t familiar with Graphcore’s IPU technology, you can discover a lot more about it in our previous analysis.
Graphcore Co-founder and CEO Nigel Toon said, “Demand for AI compute is vast and continues to grow. There remains much to do to improve efficiency, resilience, and computational power to unlock the full potential of AI. In SoftBank, we have a partner that can enable the Graphcore team to redefine the landscape for AI technology.”
Graphcore has so far targeted the high-end market, including supercomputers, and that remains the most logical focus for the technology. What will change is the company’s orientation towards Arm. Graphcore has, for several months, been implementing Arm flows in Bristol, England, and many of the meetings preceding the deal were with Arm rather than SoftBank. Expect notable Arm components supporting any future Graphcore IPU products, as in the Nvidia product line. We were told that the reason that SoftBank is the acquirer rather than Arm is sensitivity about the potential impact on Arm’s share price if it had bought Graphcore.
SoftBank says its strategy is to acquire companies in the AI field that can work together. We expect that Graphcore and Arm will work very closely, with Arm the senior partner when it comes to product strategy. Arm is seeking to achieve higher value from AI, where, to date, it mostly benefits from being a peripheral part of the solution. Arm needs an AI inferencing solution that it can exert more control over than with Nvidia. In the meantime, we understand Arm is exiting some lower-value businesses, notably in automotive GPU, to focus on the higher returns available from AI.
“Society is embracing the opportunities offered by foundation models, generative AI applications, and new approaches to scientific discovery,” said Vikas Parekh, managing partner at SoftBank Investment Advisers. “Next-generation semiconductors and compute systems are essential in the AGI (artificial general intelligence) journey, we’re pleased to collaborate with Graphcore in this mission.”
He elaborated on the deal’s strategic importance to SoftBank’s AI plans in the Financial Times: “The profit pools will grow longer term, and we expect that lots of players will develop solutions and participate in that pool.”
Graphcore says it will continue to invest in creating high-skilled jobs spanning a range of disciplines, which we take to mean that it will need to rebuild a talent pool. Graphcore has been a leading employer in the UK’s tech industry, but during a period of uncertainty beginning in mid-2023, it has lost a lot of talent to rivals, including Blaize, Imagination, VyperCore, and the fintech industry.
The company’s headquarters remain in Bristol, with offices in Cambridge, England; London; Gdansk, Poland; and Hsinchu, Taiwan. Terms of the deal were not disclosed, but one investor in Graphcore told us the deal value was “around £400 million,” which would be US $517 million at today’s exchange rate and significantly less than investors had put into Graphcore to date. The media is reporting ranges of $500 million to $600 million for the deal value. Ultimately, we only really know that it is a fraction of the company’s peak valuation (>$2.5 billion) and a notable loss for existing investors.
Still, there is good news for at least three senior execs, who are expected to receive cash from the deal and remain to manage the company, and for employees whose share deals will be reconstituted for retention purposes. Ex-employees lose all their options.