On February 8 2022, SoftBank announced Nvidia’s prospective $40bn takeover of British chip design giant Arm had collapsed.
SoftBank, a Japanese tech conglomerate, Arm’s current parent company stated “significant regulatory challenges” as the main factor behind the collapse of what was set to be the biggest acquisition in the history of the semiconductor industry. The deal seemed doomed from the start, facing widespread opposition from tech titans such as Apple, Amazon, Microsoft and Google. Arm’s microprocessor technology is used in over 25 billion chips sold per year, and the firm licenses its chip design to hundreds of companies around the world. Apple uses the chip design in iPhones and iPads, while Amazon uses it in Kindles. The fear surrounding the proposed takeover was that Nvidia could stop other companies using Arm’s chip designs, which could have significant implications, damaging a large number of companies.
Nvidia, which is known for manufacturing high quality graphics processing units, (GPUs), particularly in electronic game consoles, announced the takeover back in September 2020, with the two firms saying it would create the “world’s premier computing company for the age of AI”. Despite largescale excitement surrounding the ground-breaking news, opposition from the tech giants among others, soon led to competition regulators in the U.K., U.S., China and Europe scrutinising the deal from every angle.
Nvidia and Arm attempted to win over regulators through assurances of heavy investment in Arm, while allowing other firms to continue using the chip designs, but ultimately their efforts were in vein, with America’s Federal Trade Commission, FTC, this week saying that the shutting down of the deal will “preserve competition for key technologies and safeguard future innovation”.
The initial offer from Nvidia was a cash and stock offering worth $40bn, however following a rise in Nvidia’s stock price, in the weeks before the deal collapsed the offer was worth over $60bn. Despite the setback, which has seen long term Arm CEO Simon Segars resign, both firms remain major players with strong futures ahead, and a revisitation of the deal, or one of some sort further down the line cannot be ruled out. As for Arm, SoftBank is planning to take the company onto the stock market by 2023, although the location of the IPO remains to be seen. Russ Shaw, founder of the Tech London Advocates lobbying group says it is “essential” that the IPO takes place in the UK on the London Stock Exchange, where the company was formed. Arm is a huge asset to the UK’s tech industry, and amidst the global chip shortage crisis, Shaw added that firms like Arm have a “crucial role to play in sustaining the U.K.’s position as a leading player on the international tech and economic stages”. For lobbyists like Shaw, the fear is that the company’s IPO may take place in New York because of the tendency to value tech companies higher.
For Nvidia too, the failed deal is not the end of the world, with its data-centre growth expected to be strong in its upcoming earnings report. The majority of analysts expect Nvidia’s revenues to be up to around $7bn from $5bn in the year ago quarter. The company’s share price grew 8% on Tuesday 15th February ahead of the earnings report, with further growth expected, 35 of out 44 analysts who cover Nvidia have a buy rating, seven have hold ratings and just two have sell ratings, with an average price target around 30% above the stock’s current price.
Following the collapse of the deal, it is now time to move on and look ahead to Nvidia’s upcoming earnings report and Arm’s expected IPO, with future of the firms still looking very bright, in an industry where demand still heavily outstrips supply.