Philippa Kaur

On August 21st Arm, a chipmaker whose designs power most of the world’s smartphones, filed for an initial public offering (ipo) that could turn out to be the largest of the year. The route taken by the British firm, which is owned by SoftBank Group, a Japanese technology conglomerate, has not been straightforward. In 2016 SoftBank acquired Arm, then listed on the London Stock Exchange, for $31bn. Four years later a proposed $40bn sale to Nvidia, another chipmaker, was squashed by competition authorities. Now a blockbuster listing is in prospect that would also signal a revival of an ipo market that has been largely dormant since 2022.Arm will now be listed on America’s tech-heavy Nasdaq as soon as early September, ending a period of uncertainty for the company. SoftBank will retain majority control and pocket all the proceeds from the listing. The ipo filing does not specify how much Arm intends to raise or the chipmaker’s worth, though in August SoftBank paid $16bn for a 25% stake which was held by the group’s Vision Fund, a tech investment vehicle, putting Arm’s value at around $64bn. The speculation is that it will seek around $60bn-70bn, or around 21-25 times annual sales. That would place it closer to the lofty multiples of Nvidia, the leader of the artificial-intelligence gold rush, than the chasing pack (see chart).The ubiquity of Arm’s chip designs may seem to justify a juicy valuation. Unlike its competitors, which design, manufacture and sell chips, Arm deals only in intellectual property. It makes money by licensing its designs, which customers can modify if required, and takes a small cut from every chip built. Using Arm’s off-the-shelf designs allows companies to build a processor at a fraction of the cost of designing it themselves. As a result, its chips are everywhere.Its technology sits within 99% of the world’s smartphones. In devices from industrial sensors to smart toasters or anything else that now connects to the internet, its designs feature in 65% of their processors. In the automotive sector Arm has a 41% market share and even in the lucrative cloud-computing market, long dominated by Intel, Arm-based processors account for 10% of the chips sold.The ai boom brightens Arm’s prospects. Earlier in August Nvidia unveiled Grace Hopper, a new chip that combines an Arm-based central processing unit (cpu) with its graphics-processing unit (gpu). The fully integrated chip promises to run bigger and faster versions of the language models that are trained on text from the internet to produce human-like output. And as Sara Russo of Bernstein, a broker, points out, as ai moves from data centres to consumer apps, devices capable of running ai functions using less energy will be needed. Arm, with its expertise in low-power, high-performance chip design, should be in a good position to meet the demand.ai hype is one thing. But other tech trends look less encouraging. Begin with sluggish demand. The majority of Arm’s sales come from processors for smartphones, cars and other connected devices. Sales of these chips have lately been weaker than expected. In August Qualcomm, an American chipmaker that specialises in smartphone processors, reported a 23% drop in sales in the most recent quarter compared with a year earlier. It expects the downturn to drag on until at least the end of the year. The forecast for automotive chips is similarly gloomy. Expanding demand from ai will not be enough to offset a drop-off in Arm’s core products.Arm’s position as the only supplier of easy-to-use chip designs is also in question, from risc-v, an open-source alternative developed at the University of California, Berkeley. risc-v designs are available to anyone without a licence or fee. Alan Priestley of Gartner, a market-research firm, believes it is a “growing threat” to Arm. For now risc-v serves the lower end of the market—sensors, connected devices and automotive chips. But as the technology improves, the promise of licence- and royalty-free designs for expensive smartphone and data-centre processors could prove a problem for Arm. In the year to March 2023 all its revenues came from licensing ($1bn) and royalties ($1.6bn).The company’s reliance on Arm China—a separate entity—for a quarter of its revenues is another cause for concern for investors. In its filings the company admits that it is “particularly susceptible” to tensions between China and America. In December Arm chose not to license its designs for a high-end cpu to Alibaba, a Chinese e-commerce giant, for fear that it would fall foul of a ban imposed by America last year on selling certain cutting-edge chips in China.The question is whether the hype around ai means that investors pay less attention to such worries. When the deal to sell Arm to Nvidia fell through in 2022, Son Masayoshi, the founder of SoftBank, vowed to take Arm public in the “the largest ipo in semiconductor history”. ai exuberance in a market starved of blockbuster ipos may make his wish come true. ■ More

Attend any business conference or open any management book and an encounter with some variation of the same message is almost guaranteed: the pace of change in business is accelerating, and no one is safe from disruption. Recent breakthroughs in artificial intelligence (ai) have left many corporate Goliaths nervously anticipating David’s sling, fearing that they might meet the same fate as firms such as Kodak and Blockbuster, two giants that were felled by the digital revolution.“The Innovator’s Dilemma”, a seminal book written in 1997 by Clayton Christensen, a management guru, observed that incumbents hesitate to pursue radical innovations that would make their products or services cheaper or more convenient, for fear of denting the profitability of their existing businesses. In the midst of technological upheaval, that creates an opening for upstarts unencumbered by such considerations. Yet the reality is that America Inc has experienced surprisingly little competitive disruption during the age of the internet. Incumbents appear to have become more secure, not less. And there is good reason to believe they will remain atop their perches. Consider the Fortune 500, America’s largest companies by revenue, ranging from Walmart to Wells Fargo. Accounting for roughly a fifth of employment, half of sales and two-thirds of profits, they form the backbone of corporate America. The Economist has examined the age of each firm, taking into account the mergers and spin-offs that paint an artificially youthful picture of the group.We found that only 52 of the 500 were born after 1990, our yardstick for the internet era. That includes Alphabet, Amazon and Meta, but misses Apple and Microsoft, middle-aged tech titans. Merely seven of the 500 were created after Apple unveiled the first iPhone in 2007, while 280 predate America’s entry into the second world war (see chart 1). In fact, the rate at which new corporate behemoths arise has been slowing. In 1990 just 66 firms in the Fortune 500 were 30 years old or younger and since then the average age has crept up from 75 to 90.One explanation is that the digital revolution has not been all that revolutionary in some parts of the economy, notes Julian Birkinshaw of the London Business School. Communications, entertainment and shopping have been turned on their heads. But extracting oil from the ground or sending electricity down wires look mostly the same. High-profile flops like WeWork, a much-hyped office-sharing firm now at risk of collapse, and Katerra, a failed one-time unicorn that tried to redefine the construction business by using prefabricated building components and fewer middlemen, have discouraged others from trying to disrupt their respective industries.Another reason is that inertia has slowed the pace of competitive upheaval in many industries, buying time for incumbents to adapt to digital technologies. Although 65% of Americans now bank online, nearly all the banks they use are ancient—the average age of those in the Fortune 500, including JPMorgan Chase and Bank of America, is 138. Fewer than 10% of Americans switched banks last year, according to Kearney, a consultancy. That stickiness has made it difficult for would-be disrupters to build scale before incumbents imitate their innovations. A labyrinthine regulatory system that favours big institutions with well-staffed compliance departments also contributes. The insurance industry, also dominated by geriatric giants like aig and MetLife, is much the same.The pattern is not unique to financial services. Walmart, America’s mightiest retailer, almost missed the rise of e-commerce. David Glass, its chief executive in the 1990s, predicted that online sales would never exceed those of its single largest retail warehouse, according to a recently published book, “Winner Sells All”, by Jason Del Rey, a journalist. Nonetheless, Walmart’s financial heft and enormous customer base gave it the chance to change course later. Only Amazon now sells more online in America. The recent growth of electric vehicles from Ford and General Motors, America’s two largest carmakers, offers another example. Their bulky balance-sheets have allowed them to pour vast amounts of money into reinventing their businesses at a time when raising capital is becoming more difficult for newcomers.A third explanation for the endurance of America’s incumbents is that their scale creates a momentum of its own around innovation. Joseph Schumpeter, the economist who coined the phrase “creative destruction”, first argued that economic progress was propelled mostly by new entrants, noting in “The Theory of Economic Development”, a book published in 1911, that “in general it is not the owner of stage-coaches who builds railways”. By the time Schumpeter published “Capitalism, Socialism and Democracy”, his magnum opus of 1942, he had changed his mind. It was, in fact, large firms—monopolies, even—that drove innovation, thanks to their ability to splash cash on research and development (r&d) and quickly monetise breakthroughs through existing customers and operations, spurred on by an ever-present fear of being toppled.America’s tech titans offer the quintessential illustration. Alphabet, Amazon, Apple, Meta and Microsoft invested a combined $200bn in r&d last year, equivalent to 80% of their combined profits and 30% of all r&d spending by listed American firms. Less obvious examples abound, too. John Deere, America’s largest agricultural-equipment business, founded in 1837, leads the way on recent innovations like driverless tractors and clever sprayers that use machine learning to spot and target weeds. Its ambition is to make farming fully autonomous by 2030, says Deanna Kovar, an executive at the firm. It has been snatching laid-off techies from Silicon Valley and now employs more software engineers than mechanical ones.Incumbents and newcomers also often play complementary roles in innovation. William Baumol, an economist, wrote in 2002 of a “David-Goliath symbiosis” in which radical breakthroughs are generated by independent innovators and then enhanced by established firms. A paper in 2020 by Annette Becker of the Technical University of Munich and co-authors split the r&d spending of a sample of firms into its two components—the more exploratory “research” and the more commercially-oriented “development”—and found that the relative weight of research declined with firm size. Likewise, a 2018 paper by Ufuk Akcigit of the University of Chicago and William Kerr of Harvard Business School found that the patents generated by large firms were less radical and more focused on incremental improvements to existing products and processes.That division of labour may help explain why many startups are bought by established firms. John Deere’s acquisition in 2017 of Blue River, a startup, gave it the technology behind its clever weed sprayer, which it was then able to sell through its vast network of distributors. Over the past decade 74% of venture-capital “exits” in America were via such acquisitions, according to PitchBook, a data provider (see chart 2). That is up from next to none in the 1980s, leading to warnings of a plague of “killer acquisitions”, with big firms eating their potential future rivals. Such nefarious cases do occur, but are rare. A study in 2021 by Colleen Cunningham, then at the London Business School, and co-authors found that 5-7% of acquisitions by pharmaceutical companies, which rely heavily on startups to top up drug pipelines, looked suspect. Most of the time, folding into an established giant is simply the most efficient way for an innovative new firm to bring its breakthroughs to the world.A final explanation for the lack of competitive disruption in corporate America relates to demographics. “Young firms are generally built by young people”, notes John Van Reenen of the London School of Economics. Between 1980 and 2020 the share of the American population aged between 20 and 35 fell from 26% to 20%. The rate of new business formation fell from 12% to 8% over the same period (see chart 3). In a 2019 study comparing variations in population growth and new business formation across states in America, Fatih Karahan of the Federal Reserve Bank of New York and co-authors concluded that falling population growth accounted for 60% of the decline in the business entry rate over the past four decades. Application rates to start new businesses in America surged in late 2020 after plummeting in the early months of the covid-19 pandemic, and have since remained well above pre-pandemic levels. That entrepreneurial burst has largely focused on hospitality and retailing, which were hammered by the pandemic, and over time may peak, especially as household savings, puffed up by the pandemic, dwindle. Optimists will hope that the recent flurry of investment in ai startups can sustain the momentum. Even if it does, the corporate giants of the past may well remain on top. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

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“WE ARE WORKING flat-out,” says Armin Papperger, chief executive of Rheinmetall, Germany’s biggest arms-maker. Ever since Russia invaded Ukraine in February last year, the Düsseldorf-based maker of tanks, ammunition and other military kit has been inundated with orders. On August 10th the firm reported that sales of its military ware in the first half of the year had risen by 12% compared with the same period in 2022, and Mr Papperger expects growth to hit 20-30% for the year as a whole. A few days later the company said it had secured an order from the Ukrainian army for drones, and on August 18th it is due to inaugurate a large new factory in Hungary. Its share price has roughly tripled since the start of last year.Listen to this story. Enjoy more audio and podcasts on More

Paris has long been at the heart of the history of flight. It is where the Montgolfier brothers ascended in the first hot-air balloon in 1783, and where Charles Lindbergh completed the first solo transatlantic aeroplane journey in 1927. Next year, if all goes to plan, Paris will be the site of another industry first when Volocopter, a German maker of electric aircraft, launches a flying-taxi service during the Olympic Games. At the Paris Airshow in June the company, and some of its rivals, paraded a new generation of battery-powered flying machines designed for urban transport.Listen to this story. Enjoy more audio and podcasts on More

The long-running legal battle over America’s opioid epidemic was reignited when, on August 10th, the country’s Supreme Court said it would review an earlier settlement secured by Purdue Pharma, a main character in the saga. Back in 2021 a federal judge had approved a bankruptcy plan for Purdue—the maker of OxyContin, a highly addictive painkiller—under which the business was to be restructured as a public-benefit company with all future profits going towards settling claims from victims and funding addiction-treatment programs. Members of the Sackler family, which owns the drugmaker, were to contribute $4.5bn (later increased to $6bn) towards the settlement.Listen to this story. Enjoy more audio and podcasts on More

On August 15th VinFast, a Vietnamese electric-vehicle (EV) manufacturer, made its trading debut on the Nasdaq, an American stock exchange. It was quite the entrance: the company’s share price rocketed, pushing its market capitalisation from $23bn to $85bn. That is almost as much as Ford and General Motors, two giant American carmakers, combined, and seven times that of Vingroup, its parent company. On August 16th it fell a little, to $69bn.Investors are racing to get a stake in VinFast. The company is still a minnow in the EV business, but has big ambitions. In May Pham Nhat Vuong, the company’s founder and Vietnam’s richest man, said it hoped to sell 50,000 cars this year, up from 7,400 last. Although most of its vehicles are currently sold in Vietnam, it has its eyes set on the American market. Last month it broke ground on a factory in North Carolina, and has already begun selling imported vehicles in California, where it has 13 dealerships.The reviews have not been glowing. The VF8 model VinFast is selling in California is “simply not ready for America”, says Kevin Williams, an industry journalist. “Yikes,” is how Steven Ewing, another reviewer, titled his assessment of the car, citing a poor steering experience. At $46,000, it is not much, if any, cheaper than the entry-level models offered by rivals like Tesla, America’s EV goliath. A mere 128 VF8s were sold in America between February and May, according to Experian, a data-analytics firm. Even if VinFast achieves its lofty growth targets for the year, its valuation will continue to strain belief. It made a $2.1bn net loss last year, and has said it will break even, at the earliest, at the end of next year. AlixPartners, a consultancy, reckons EV makers need to produce around 400,000 cars a year before they start turning a profit. After that, the company would still have a long way to go before it caught up with the industry’s leaders. Last year Tesla sold 1.3m EVs. BYD, a fast-growing Chinese carmaker, sold 1.9m, around half fully electric and half plug-in hybrid.With a mere 1% of its shares put up for trading, VinFast’s lofty market valuation is vulnerable to rapid swings. Investors in the company may be in for a bumpy ride.■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

For more than 200 years Luddites have received bad press—worse even than the British Members of Parliament who voted in 1812 to put to death convicted machine-breakers. Yet even at the time, the aggrieved weavers won popular sympathy, including that of Lord Byron. In an “Ode to Framers of the Frame Bill” the poet wrote: “Some folks for certain have thought it was shocking/ When Famine appeals, and when Poverty groans/ That life should be valued at less than a stocking/ And breaking of frames lead to breaking of bones.” He used his maiden speech in the House of Lords to urge for a mixture of “conciliation and firmness” in dealing with the mob, rather than lopping off its “superfluous heads.” Once again, technological upheaval is rife and there is a widespread feeling, even among the patrician classes, that the old ways are in danger of being trampled under foot by the march of progress. In America two big labour disputes—one looming, the other well under way—are, among other things, grappling with potentially seismic transformations caused by decarbonisation and artificial intelligence (AI).The United Auto Workers (UAW) union, representing employees of Ford, General Motors and Stellantis (maker of Chrysler and Fiat), is threatening a strike when labour contracts end on September 14th. As well as fighting for sharply higher pay, one of its goals is to extend wages and other benefits offered in conventional car manufacturing to people working on electric vehicles (EVs), the production of which typically uses more robots and fewer blue-collar workers. Over in Hollywood, writers and actors are at an impasse with studios over pay and conditions in the streaming era, a dispute that has been muddied by the vexing question of how AI will reshape the industry if new tools can be used to write scripts or simulate actors. Such struggles may well shape how workers in other industries view the impact of technological change on their jobs.A new generation of union leaders has come out swinging. Shawn Fain is the first president of the UAW in 70 years to emerge from outside the union’s ruling clique. He was elected in March by the rank and file, after a years’-long corruption scandal led to a change in the union’s voting procedures. From the start, Mr Fain has cast himself as a firebrand. He publicly threw a bargaining proposal from Stellantis into the bin. (The biggest shareholder in the firm, Exor, part-owns The Economist’s parent company.) Meanwhile, the Writers Guild of America and SAG-AFTRA, which represents actors, have gone on strike simultaneously for the first time in more than 60 years. Fran Drescher, leader of the actors’ guild (and star of “The Nanny”, a 1990s sitcom) has made clear that the showdown is part of a wider struggle. “The eyes of labour are upon us,” she said in a thundering speech announcing the strike.The fights are taking place in an unusually supportive environment for unions. Late last month more than half of the Senate’s Democrats signed a letter to the “Big Three” carmakers arguing that workers at their battery plants should be eligible for the same deal offered to other UAW members. President Joe Biden, who equates “good” jobs with union jobs, has just reinstated a rule shelved during the Reagan administration that will, in effect, boost wages for construction workers on government-backed projects. Nationwide, support for unions is at 71%, its highest level since the mid-1960s, according to Gallup, a pollster. Both in Detroit and in Hollywood, unions are tapping into popular disquiet over ballooning pay for CEOs. Even the Republicans, though vehemently anti-union, are trying to rebrand their relationship with workers. American Compass, a conservative think-tank, calls for the creation of worker-management committees, similar to Europe’s “work councils”, which give employees a voice in how a business is run.Some academics contend that workers are right to be wary of technological change. “Power and Progress”, a newish book by Daron Acemoglu and Simon Johnson, both of the Massachusetts Institute of Technology, wades through a thousand years of history to argue that new technologies lead to better livelihoods only when they create jobs, rather than just cost savings, and when countervailing forces, such as unions, shape their effect. It berates techno-optimism, and at times sounds like a Luddites’ manifesto. Speaking to your columnist, Mr Johnson expresses optimism that the UAW and the Big Three can find a way to ensure the switch to EVs does not lead to widespread job losses. He points to the eventual embrace by unions of the containerisation of shipping, which saved countless hours of labour at ports but also led to a surge in the amount of cargo that passed through them, preserving jobs and benefits for dockers. In theory, as EV production scales up, prices will come down and more drivers will buy them. If they put their feet on the gas the Big Three may even be able to reverse the decline in America’s car exports, fuelling demand for even more workers. The massive subsidies handed out by the Biden administration to promote EV production afford the industry a rare opportunity to regain the initiative.Bish, bash, botBy contrast, Mr Johnson’s prognosis for writers and actors in the age of AI is darker, likening their plight to that of the weavers-cum-Luddites whose jobs were rendered unnecessary by machines. That view helps explain why they are seeking to pre-emptively curtail studios’ use of AI. Yet the technology’s impact on Tinseltown need not be zero-sum. By speeding up the writing process, for instance, AI could lower costs and allow more content to be created.What’s more, the gales of creative destruction can be held back only for so long. For unions to secure their members’ livelihoods they need to work with technological change, rather than against it. That means using a Byronesque combination of conciliation and firmness to ensure that it is used to grow the pie for everyone, rather than double down on anti-corporate rage. If not they may end up, like the Luddites, on the wrong side of history. ■ More