British chipmaker Graphcore has been officially acquired by Japan's SoftBank.
Rumors of the deal have been floating around for a while, but neither company has confirmed anything until now as negotiations and regulatory approvals dragged on. Even today, the company has not acknowledged the one thing most people would be wondering about: how much Japanese multinational SoftBank values the startup that's being touted as a potential rival to AI chip powerhouse Nvidia.
The $500 million figure has been floating around in various reports for months, but at a press conference early Thursday, Graphcore co-founder and CEO Nigel Toon was coy about the details. “We have agreed with SoftBank not to discuss the specifics of the transaction. We'll see if anything comes out in the future,” Toon said.
But Toon said the $500 million figure is inaccurate — what you make of it is up to you.
When you're in a pinch
Founded in Bristol in 2016, Graphcore has come up with a new kind of processor it calls an “intelligence processing unit” (IPU), which is different from the graphics processing units (GPUs) developed by Nvidia and others. Both speed up calculations, but IPUs have a different architecture designed from the ground up for AI workloads. Graphcore pitches its chips as a more efficient alternative to GPUs, with a focus on supporting massive parallelism and running complex machine learning models where models and data are tightly coupled.
Graphcore has raised around $700 million since its founding, and was valued at nearly $3 billion in late 2020. With big companies and institutional investors like Microsoft and Sequoia, as well as angel investors like DeepMind's Demis Hassabis and OpenAI co-founder Greg Brockman, hopes were high that Graphcore would become an AI pioneer in the UK and even across Europe. But AI hardware is a resource-intensive business, and Graphcore ultimately failed to reach the heights many had hoped for. The company missed out on a potentially lucrative cloud deal with Microsoft, and the UK government also ignored the company's new “exascale” computer plans last year (despite Toon's own public pleas).
Graphcore hasn't been in a great place lately, but things got worse last year when it was forced to pull out of China due to U.S. export controls.
With losses mounting and four years since Graphcore's last capital infusion, it was becoming increasingly clear that something had to happen somewhere, and an acquisition seemed the most likely outcome, especially at a time when demand for AI hardware is at its highest.
SoftBank, meanwhile, is no stranger to British semiconductor companies, having bought Arm for 24 billion pounds ($31 billion) and retained a stake after spinning it off last year into a public company valued at $55 billion. Arm is now worth nearly $200 billion. That may be a sign that SoftBank may not be the worst bedfellow for Graphcore, the deep-pocketed Japanese giant looking to bolster its AI ambitions with everything from data centers and robotics to the semiconductors that will power the AI revolution.
Certainly, that's how people at Graphcore see things: While outsiders might see the sale to SoftBank as a missed opportunity for a UK or European company to create an independent AI hardware giant, Toon's tone at Thursday's briefing was more optimistic and positive.
Firstly, Toon acknowledged that he does not expect the acquisition to result in any job cuts at the company's sites in the UK, Poland or Taiwan, adding that instead headcount in the UK is likely to increase “quite significantly”.
And importantly, both he and CTO and co-founder Simon Knowles will remain in officer and director roles.
Simon Knowles, co-founder and CTO of Graphcore. Image courtesy of Graphcore
But in the eyes of most people, Graphcore hasn't really lived up to its initial promise. So, what happened?
In short, the expenditures required for the space in which Graphcore operates are orders of magnitude higher than what Graphcore had access to as a standalone company.
“Back in 2012, Simon and I were in a pub talking about AI and the hardware we needed for it,” Toon told TechCrunch. “We've been thinking about this for a long time and what we need for AI. We're probably some of the earliest thinkers in this space. What surprised us was [most] “The issue is the speed with which this all started and the scale that it entails.”
Toon said this “scale” would involve 100,000 interconnected AI processors, networks, liquid cooling and other systems, and would be no child's play – nor would it be cheap.
“This is a massive level of investment. What's really interesting here is that Graphcore is a relatively small company. It's a big investment in the UK but it's still small compared to our competitors. But we've been able to go toe-to-toe and build world-class technology.”
Graphcore has always been relatively modest in terms of employee size: By comparison, Nvidia has about 30,000 employees, compared to about 500. And while Nvidia has grown organically for about three decades, Graphcore was scaling up at a time when post-pandemic capital markets were not friendly to startups like Graphcore.
“The right outcome for us is to work closely with a partner willing to make the level of investment necessary to succeed in what will likely be the most important market in technology over the next few years,” Toon said.
Time will tell if the acquisition was a wise move for the companies involved, but Thun acknowledged reports this week that some former employees' shares were wiped out in the deal, suggesting the purchase price was less than (or close to) what was raised because investors and senior executives likely held preferred stock options over former employees. Thun did, in fact, acknowledge that he made some profit on the deal, but declined to say how much.
Toon also stressed that the deal was a relatively positive outcome for all current employees and investors, at least those who intend to stay with the company.
“M&A transactions work in many ways and sometimes former employees are not able to participate in what happens next, which is unfortunately the case here,” Toon said. “We're sorry about that, but we can say this is a great outcome for all of Graphcore's current employees and those who will work for the company in the future. [And] “This is a good result for investors. Everybody is very happy.”
Graphcore Receives Regulatory Approval
Acquisitions of this magnitude often go through months or even years of regulatory wrangling, but in this case SoftBank and Graphcore have already received all the necessary antitrust and national security approvals. As a major infrastructure company, such a deal would always be subject to scrutiny under the UK's National Security Investment Act, which came into force two years ago.
“We've gone through a very rigorous process to get regulatory approval for this transaction, which is why there may have been rumors floating around for some time,” Toon said. “All approvals have been received in the U.S. and elsewhere.”
As such, Graphcore will officially be owned by SoftBank and will operate as a wholly owned subsidiary under the existing Graphcore name. The company will continue to be headquartered in Bristol, with additional offices in London and Cambridge in the UK, as well as Gdansk (Poland) and Hsinchu (Taiwan).
The future of SoftBank subsidiary Graphcore is unclear, but Vikas J. Parekh, managing partner at SoftBank Investment Advisers, emphasized that Graphcore will play a major role in the pursuit of AI-driven wealth.
“Society is embracing the opportunities presented by foundational models, generative AI applications, and new approaches to scientific discovery,” Parekh said in a press release shared with TechCrunch. “Next-generation semiconductors and computing systems are essential for AGI. [artificial general intelligence] We are excited to partner with Graphcore on this journey.”