Nvidia’s $40 billion acquisition of Arm in troubled waters

4 min read | August 04, 2021 06:55 PM AEST | By Kamalika Ghosh

Nvidia’s $40 billion acquisition of Arm in troubled waters — Image source: Phongphan, Shutterstock.com

UK government’s concern

In April, Oliver Dowden, the UK Culture Secretary, appointed the Competition and Markets Authority (CMA) to assess the impact of the deal. CMA was asked to make a report regarding the anti-competitive and national security concerns raised by third parties. In July, the CMA, in its preliminary examination of the deal, highlighted worrying implications for national security, and thus, the UK government is currently tending to reject the acquisition. However, the government is expected to conduct an in-depth analysis of the merger due to national security issues before making the final decision.

It must be noted that no final decision has been taken yet, and the UK government is still in the process of weighing all pros and cons of the deal before its finalisation. The UK government has yet to decide if the merger needs further analysis by the competition authorities in the country and is even considering approving the deal alongside certain conditions. Nvidia is working alongside the UK government to resolve the issues. The UK government officials and CMA declined to divulge any details.

The deal’s failure to pass through the regulatory hurdles may impede Nvidia’s ability to dominate the computing-chip market, while investors still remain sceptical about the deal completion. Nvidia has, however, committed to paying about $2 billion to SoftBank, whether the takeover goes through or not.

The technology

The $400-billion chip industry is ruled by Arm as it owns the industry’s most used chip blueprint and design. The company’s technology is leveraged by most smartphones and is finding increasing applications in computing, including server machinery that operates government and corporate systems.

Cambridge-based Arm is engaged in selling chip blueprints and licenses its standards to various major technology firms, including competitors. The 2016 takeover of Arm by the Japanese investor SoftBank ensures its exclusivity with its customer portfolio and preserves its neutral stand. Nevertheless, it remains unclear how the change of ownership would threaten UK’s national security.

The acquisition of Arm by SoftBank has made semiconductor technology a new focus area for politicians after the former US President Donald Trump’s trade war with China. Wales-Based, Newport Wafer Fab Ltd. is also currently under the UK government scanner, post its agreement to merge operations with a Chinese manufacturer for £63 million ($87 million).

Protecting critical assets

In the interest of protecting critical national infrastructure, the UK government barred Chinese-owned Huawei Technologies Co., for the 5G technology rollout and is also planning to end Chinese intervention in the country’s critical nuclear projects.

Arm’s critical standing in the chipmaking industry implies worrying implications of the deal, as Nvidia directly competes with some of Arm’s customers, including US-based companies such as Intel (NASDAQ: INTC), Advanced Micro Devices (NASDAQ:AMD), and Qualcomm. Nvidia competitors have also offered to invest in Arm to aid its independent operations if Nvidia’s acquisition is blocked. The takeover deal is subject to regulatory clearance from the European Union, the US and China.

After successful regulatory clearance, Nvidia promises to maintain Arm’s independence and invest in increasing its reach. However, the deal may be associated with conditions such as maintenance of the 3,000 UK-based staff and maintaining the company headquarters in Cambridge. In addition, if regulators block the deal, SoftBank announced intentions of pursuing an IPO of ARM.

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