UK Chip Designer ARM to Be Acquired by Nvidia In the Largest Tech Deals of The Year

Summary

• SoftBank is contemplating selling ARM Holdings to Nvidia of USA for $40 billion.
• This could be one of the largest deals in the tech sector in the world this year, involving a British chip designer to be taken over by an American chip manufacturer.
• Chip designs and intellectual property of ARM are used by most of the world manufacturers of mobile devices, personal computing devices and server manufacturers. Control of this company by an American chip manufacturer could bring about disruptive changes in this industry.
• Several British Business leaders and MPs have urged to block the deal including the founders of ARM.

Merger and Acquisition (M&A) activity in the chip manufacturing business has heated up again. SoftBank which had previously bought a controlling stake in British Chip designing company ARM for $32 billion in 2016, is now contemplating selling it to Nvidia of USA for $40 billion. The deal which of course is subject to the approval of the government will see one of UK’s largest technology company going under the control of a foreign company. The deal would have several other implications as well. Being a technology provider ARM has several clients based in China, Japan, and South Korea, who are rivals of Nvidia. With ARM in its control, it can now determine what technology and how much of it goes to its rivals, thereby seriously impacting the technological growth of its rivals. This could also mean that ARM's activities will get curtailed, its clientele will shrink, and as a segment of Nvidia, its growth prospects could also shrink.

How ARM landed at NVIDIA?

In 2016 ARM and its shareholders accepted a takeover offer from Japanese conglomerate Softbank for $32 billion, which was 42 per cent higher than its then trading price on the London Stock Exchange. The deal was then approved by the government with the conditions that Softbank would not move the headquarters of the company from Cambridge and continue to create jobs in the UK. Hailed then as one of the largest investments in the tech sector in the United Kingdom, Softbank did bring about significant growth to the ARM as promised while maintaining its status as the most valuable technology company in the United Kingdom.

Softbank’s investment in ARM was tactical, as the company invests in a variety of businesses, media, marketing, finance, investments as well as high technology, with a profit motive.

The offer from Nvidia is at an $8 billion higher valuation than what it had paid in 2016, and thus represents a significant profit-making opportunity in the present condition.

What could the deal mean for the entire chip market?

The semiconductor chip market could see some major realignments in the future. Since ARM was a major technology supplier for the Mobile devices and computing device market, its control by a single chip manufacturer will prompt others to look for alternatives. This will prompt more investments flowing into the chip designing business, and the existing small company will start gaining renewed importance.

This could also mean that fair competition in the market would reduce and the prices of semiconductor devices would increase. In the short run, at least when more companies do not rise up, existing companies would try to control the prices in the market to the detriment of the consumers.

The importance of ARM in the eyes of its clients as a technology vendor would reduce, which may or may not result in their parting ways with ARM. However, it will certainly have a defining impact on the company’s ability to secure new clients.

Why is the British industry opposing the deal?

ARM is the largest and one of the most respected tech companies in the United Kingdom. Most of its success has been attributed to the rise of Chinese and Korean companies like Samsung and Vivo in the smartphone market. The Asian market is a continuously growing market and a strong relationship with Asian clients is a must for the future of the company.

Given the souring relationship between Washington and Beijing over the past couple of years, it is likely that the United States would try to influence the transfer of technology to Asian entities which it might feel would not serve its interest. The CEO of Nvidia has though stated that it will not interfere with the independence of ARM on who it chooses to do business with, but the threat will always be there on American sanctions on technology products of ARM.

British industry leaders and lawmakers understand that and are worried that the growth and development of a world-class British technology company would now be controlled by an American company, who would control it as per its suitability. Several British Business leaders and MPs have urged to block the deal including the founders of ARM.

ARM Holdings Ltd

ARM is United Kingdom's largest technology company. Founded almost 29 years back, the company's designed semiconductor products can be found in cellphones, tablets, smart TV's, and several other computing products, manufactured by most of the leading names in the world. The company is headquartered in the Cambridge United Kingdom but also has many offices and design centres across the world, including in Asia, the United States and Europe.

Prior to its takeover by Softbank in 2016, the company was listed on the London Stock Exchange and was also constituent of the FTSE 100 index.

Brief introduction of Nvidia corporation

Nvidia Corporation is an America based multinational technology company known primarily for its Graphics Processing Units (GPU's). Other than that the company also manufactures a range of semiconductor chips which are used extensively in smartphones, smart TV's, and high-performance computing devices.

Founded 27 years ago in the United States, the company now had a presence across the world. The company is one of the largest processor manufacturing companies in the world, which has grown organically as well as with the help of a series of acquisitions over the years.

The shares of the company are part of the NASDAQ, and also form part of the NASDAQ-100 index, S&P 100 index as well as the S&P 500 index.