Can Nvidia Complete its Takeover of Arm, Despite Intense Scrutiny?
In September 2020, Jensen Huang, founder and CEO of tech company Nvidia, announced his intention to buy Arm, a technology IP firm, for $40 billion USD. Arm is currently owned by the Japanese conglomerate SoftBank, which purchased the British firm in 2016. Commenting on the deal, Huang stated that his desire was “to create the leading computing company for the age of AI”. However, opposition to the deal has been growing, and the takeover could yet be blocked by regulators.
Based in the US, Nvidia started out developing graphics cards for video games, but has since expanded into artificial intelligence, cloud computing and self-driving cars. It is the world’s most valuable manufacturer and designer of processors, with a stock price of almost $500 a share. For comparison, Nvidia’s main competitors AMD and Intel trade at $75 and $44 a share, respectively.
Headquartered in Cambridge, Arm’s technology is at the heart of billions of devices worldwide, from smart thermostats to smartphones. For instance, Apple licences Arm’s microprocessor architecture to design its A-series processors for its iPhones. And from 2021, Arm will replace Intel as Apple’s processor of choice in its latest MacBook line up.
Nvidia indicated the takeover process would take around 18 months and acknowledged the need for regulatory approval. The complex nature of the deal means that regulators in the UK, US, EU and China could all potentially move to block the acquisition.
UK concerns over jobs
When Arm was bought by Softbank in 2016, the UK government insisted on legal guarantees on retaining jobs in the UK. This softened concerns that the purchase could lead to a bad outcome for the UK.
Nvidia has given similar assurances, promising that Arm’s headquarters will stay in Cambridge and that it will register its intellectual property in the UK. Furthermore, it has promised to increase R&D funding and develop a new supercomputer in the UK. However, Hermann Hauser, one of the co-founders of Arm, expressed his concerns in an open letter to the Prime Minister, highlighting that these assurances are not legally binding. He argued that the deal was a matter of “national economic sovereignty”.
Arm's Neutrality - under threat?
Arm designs blueprints for processors, which other companies purchase a license to use in their own products. Hermann Hauser has likened Arm’s position to being “the Switzerland of the semi-conductor industry”. As such, the acquisition by Nvidia, a major competitor in semi-conductors, has raised concerns by some that Arm may not be able to remain neutral.
Writing to the Financial Times, Lord Peter Mandelson spoke of “a pressing need for scrutiny of Nvidia’s plans”, and called for China, the EU and UK regulators to examine the deal. Mandelson raised the possibility that Nvidia may deny competitors access to Arm and dominate the semi-conductor industry. The Arm-Nvidia deal could be seen as a potential conflict of interest, given that Arm supplies some of Nvidia’s competitors.
This also has implications for consumers. If Nvidia is able to further squeeze out Intel and AMD using Arm, this could lead to reduced competition in the market. As a result, prices of processors could rise.
Another concern is geopolitical. In the context of ongoing trade tensions between the US and China, the acquisition of Arm by Nvidia could see it caught between Beijing and Washington. Bloomberg reported that Chinese companies including Huawei had lobbied Chinese regulators to either block the deal or impose further restrictions.
In an interview at DevSummit 2020, Jensen Huang responded to critics by saying that Nvidia wanted to protect “[Arm’s] neutral, committed, consistent, trusted platform”.
In addition, Huang acknowledged concern by regulators but stated that, “as soon as we explain the rationale of the transaction and our plans, the regulators around the world will realise that these are two complementary companies”
In addition, Huang stated that the takeover was “good for the market... good for customers”.
Nvidia’s acquisition of Arm hangs in the balance, but it may yet go through. A combined Arm-Nvidia would have a central position in the technology sector, as the industry moves towards rolling-out AI technology. With the stakes for customers, countries and competitors high, all eyes are now on regulators.