British chip company Graphcore has been officially acquired by Japan's SoftBank.
Rumors of this deal have been rife for some time, but due to long-term negotiations and regulatory approvals, neither company has confirmed anything so far. Even today, the company has not confirmed one thing that most people are wondering: How much will the Japanese multinational SoftBank value the startup, known as a potential competitor to Nvidia in the AI chip space?
The $500 million figure has been floated in various reports for months, but in an early morning press conference Thursday, Graphcore co-founder and CEO Nigel Toon remained cautious about the details. “We’ve agreed with SoftBank not to discuss the specifics of the deal. We’ll see if anything comes out of it,” Toon said.
But Toon said the $500 million figure was inaccurate. Take that for what it is.
When something actually happens
Founded in Bristol in 2016, Graphcore has designed a new type of processor called an “intelligence processing unit” (IPU), which is different from the graphics processing units (GPUs) developed by companies like Nvidia. While both accelerate computations, IPUs have a different architecture designed from the ground up for AI workloads. Graphcore markets its chips as a more efficient alternative to GPUs, with a focus on running complex machine learning models that support massive parallelism and where models and data are tightly coupled.
Graphcore has raised around $700 million since its founding, and was valued at just under $3 billion in late 2020. With big-name corporate and institutional investors like Microsoft and Sequoia, as well as angel investors like DeepMind’s Demis Hassabis and OpenAI co-founder Greg Brockman, there were high hopes that Graphcore could become a beacon of AI for the UK, or perhaps even Europe as a whole. But AI hardware is a resource-intensive business, and Graphcore ultimately fell short of the dizzying heights many had hoped it would reach. It missed out on a potentially lucrative cloud deal with Microsoft, and the UK government passed over Graphcore for its new “exascale” computer plan last year (despite Toon’s public appeal).
Graphcore hasn't had such a great time of late, last year it was forced to pull out of China due to US export regulations.
As losses mounted and it approached four years since Graphcore’s last capital investment, it became increasingly clear that something had to happen somewhere. An acquisition always seemed the most likely outcome, especially at a time when demand for AI hardware was at its peak.
SoftBank is no stranger to the British semiconductor company, having previously acquired Arm for £24 billion ($31 billion) and then retained a stake in the company when it spun it out into a $55 billion public company last year. Arm is now valued at close to $200 billion. That could be a sign that SoftBank might not be the worst match for Graphcore, as the deep-pocketed Japanese powerhouse looks to fuel its AI ambitions with everything from data centers and robotics to the semiconductors needed to power the AI revolution.
Certainly, that’s how the folks at Graphcore see things. While outsiders might see the SoftBank sale as a missed opportunity for a British or European company to create an independent AI hardware giant, Toon’s tone in Thursday’s briefing was another optimistic affirmation.
Toon initially said it does not expect any layoffs as a result of the acquisition at its UK, Poland and Taiwan hubs, adding that if it does it would likely result in a “significant” increase in its UK workforce.
And importantly, he and co-founder Simon Knowles, CTO, both remain in their executive and board roles.
But in most people’s eyes, Graphcore didn’t really live up to its initial promise. So what happened?
Simply put, the expenditures required to operate in the space Graphcore operates in are significantly higher than what Graphcore could have accessed as an independent company.
“Simon and I sat in a bar in 2012 and talked about this: AI and the hardware that it would require,” Toon told TechCrunch. “We’ve been thinking about this and what it would require for a long time, and we were probably one of the earliest thinkers in this space. I think what surprised us the most was the speed at which it all started and the scale of it.”
According to Toon, this “scale” includes 100,000 interconnected AI processors, networking, liquid cooling, and everything else. It’s not child’s play, and it costs a lot of money.
“This is an absolutely massive investment, and what’s really interesting about this is that Graphcore is a relatively small company. They’re big in terms of UK investment, but they’re still small in terms of the companies we’re competing against. And we’ve been able to fight back and build world-class technology.”
Graphcore has always been relatively modest in terms of headcount. For comparison, Nvidia has about 30,000 employees, while Graphcore has about 500. And while Nvidia has grown organically for about 30 years, Graphcore was trying to expand during a time when capital markets were not friendly to startups with the same slant as Graphcore, post-pandemic.
“The right outcome for the company is to work closely with partners who are willing to make the level of investment necessary to succeed in what will be the most important technology market in the coming years,” Toon said.
Time will tell if the acquisition is a prudent move for the companies involved, but Toon confirmed this week that some former employees’ shares were forfeited in the deal, suggesting the acquisition price was lower or similar to what was raised, as investors and executives are more likely to hold preferred stock options than former employees. In fact, Toon confirmed it made a small amount of money on the deal, although it did not disclose how much.
Toon also stressed that the deal is a relatively positive outcome for both current employees and investors, at least those who want to stay with the company.
“There are a lot of ways to structure an M&A deal. Sometimes that means the former employees are not involved in what happens, and unfortunately that is the case here,” Toon said. “I’m sorry about that, but what I can tell you is that this is a good outcome for all the current employees of Graphcore and those who will be working with the company going forward. (And) it’s a good outcome for the investors. They’re all very happy.”
Graphcore Receives Regulatory Approval
When an acquisition of this scale is announced, there are often long-term regulatory conflicts that can last months or years. But here, SoftBank and Graphcore have already gone through all the necessary antitrust and security approvals. As a major infrastructure company, such a deal will always be subject to scrutiny under the UK’s National Security and Investment Act, which came into effect two years ago.
“We went through a very rigorous process of getting all the regulatory approvals for this deal, so there may have been rumors going around for a while,” Toon said. “All the approvals were in the U.S. and elsewhere.”
So that's it. Graphcore is now officially owned by SoftBank and will operate as a wholly owned subsidiary under the existing Graphcore name. The company will remain headquartered in Bristol, with additional hubs in London and Cambridge, UK, and offices in Gdansk, Poland, and Hsinchu, Taiwan.
It’s unclear what Graphcore’s next steps will be as a SoftBank subsidiary, but Vikas J. Parekh, managing partner at SoftBank Investment Advisers, emphasizes that Graphcore will now play a big role in SoftBank’s pursuit of AI wealth.
“Society is embracing the opportunities presented by new approaches to fundamental models, generative AI applications, and scientific discovery,” Parekh said in a press release to TechCrunch. “Next-generation semiconductors and computing systems are essential to the journey to artificial general intelligence (AGI), and we are excited to partner with Graphcore on this mission.”
