SoftBank to Acquire Graphcore for £400M

Japan's SoftBank Group has announced its plan to acquire the struggling AI startup Graphcore for £400 million, a transaction that still requires approval from the UK government.

Founded in 2016, Graphcore is known for producing Intelligence Processing Units (IPUs), AI chips designed to compete with NVIDIA. The high demand for NVIDIA's devices has driven investors to fund Graphcore, seeking viable alternatives. In 2020, Graphcore raised $222 million at a valuation of $2.8 billion, marking it as one of the UK's most promising startups.

Despite its early promise, Graphcore has faced significant challenges. Financial reports reveal that the company’s revenue for 2022 was just $2.7 million, a 46% decrease from $5 million the previous year, with losses widening by 11% to $204.6 million. These losses were mainly due to increased operating costs driven by R&D investments. As of the end of 2022, Graphcore had $157 million in cash and short-term investments. The company anticipates further losses in 2023 as it continues to invest in product development.

In an effort to control costs, Graphcore began layoffs in 2022, reducing its workforce from 631 to 494 by the end of the year. By October 2023, media outlet The Register reported that Graphcore, struggling with operational issues, continued layoffs and closed offices in Norway, Japan, and South Korea. The company needs to secure new funding from investors in the coming months to offset increasing losses and sustain operations.

Graphcore's latest annual report confirms the need for further financing, with detailed cash flow forecasts extending to December 2027, indicating the necessity of additional funding to reach its planned cash flow breakeven point.

Chrysalis Investments Ltd., an investor in Graphcore, announced in December 2023 the potential sale of its equity in the company. In its interim results released on June 28, Chrysalis stated that discussions about the "potential sale" were ongoing and "progressing well," with hopes for a swift agreement.

SoftBank Group, the largest shareholder of UK semiconductor IP giant Arm, aims to expand its semiconductor portfolio and achieve synergies with Arm through the Graphcore acquisition. However, SoftBank's offer for Graphcore is significantly lower than the company's overall valuation of over $2.7 billion in late 2020.

Under the UK's National Security and Investment Act, SoftBank's acquisition of Graphcore requires UK government approval. Given SoftBank's 90% stake in Arm, the transaction is likely to be approved, otherwise, Graphcore may face potential collapse.