The North London club confirmed the signing of the Barcelona forward on Thursday night, for a fee believed to be in the region of £35million.
The Chilean striker impressed at World Cup and was coveted by Liverpool, who wanted the player as part of Luis Suarez's potential transfer to Barcelona.
But Arsene Wenger's FA Cup-winning side secured a major coup by capturing the 25-year-old, who will add to a frontline that includes Olivier Giroud, Lukas Podolski and Yaya Sanogo.
"Sanchez is a fantastic signing," the former Gunners forward told Sky Sports News.
"He's enjoyed a really good World Cup for Chile - he's been their best player and he's been the one that's dragged them forward and produced some real moments of quality.
"He's also got that all-important pace and is someone who can get behind defences.
"He played on the right a lot for Barcelona, so whether he'll play a bit more centrally for Arsenal we'll wait and see but he's a really good signing.
"He's only 25-years-old, so when you talk about resale values you will get some money back for a player like that.
"Coming across to England is a different sort of challenge for him - it's certainly a different type of play to La Liga and what he's used known previous to that - but he's a tough competitor.
"If he gets kicked he gets back up again; he's got a bit of steel about him. Given a bit of time I think he should be able to settle and do really well in the Premier League.
"Arsenal have got Sanogo coming through - a lot of Arsenal fans will say he's nowhere ready, and he isn't ready yet week after week, but he's a player who's developing and should get better.
"Podolski, as well, is somebody, if he stays at the club, that can play through the middle; you wouldn't want to rely on him week after week but he's an option.
"If you've got Giroud, who's waded in again with 20 plus goals, and then you've got some like Sanchez, I think that's a decent armoury for them to have up front."
Arsenal also look to set to confirm the £10million signing of Newcastle right-back Mathieu Debuchy.
The Frenchman is another player who caught the eye during the World Cup and Smith believes he'll make a good like-for-like replacement for his fellow countryman Bacary Sagna, who joined Manchester City at the end of the season.
Smith added: "Debuchy is in for France ahead of Bacary Sagna at the moment.
He probably didn't enjoy a classic season for Newcastle - certainly not a flawless season - and got himself in to a bit of a tangle at times.
"But he's a fighter, a real competitor - a bit like Sagna on that front - and he's experienced as well and that's what you need."