Nvidia’s bold bid for Arm is in big trouble

Nvidia's Jensen Huang wanted to upend the chip industry with its Arm bid. Regulators think it's too much.

Nvidia and Arm getting glued together

Nvidia's $40 billion bid to acquire Arm faces regulatory challenges.

Image: Christopher T. Fong/Protocol

Nvidia's Jensen Huang and Arm's Simon Segars — two of the most important CEOs in the chip industry — are a study in contrasts.

The British-born Segars exudes a "can-I-hold-the-door-for-you" politeness. Huang is audacious, known for sporting a trademark leather jacket at public events and forging Nvidia's play-to-win culture.

Huang's bold vision for Nvidia's future centers on absorbing Segars' diplomatic strategy for Arm through a $40 billion bid to acquire the chip designer. It's a transformative deal for both companies that would reshape the semiconductor industry: not just in terms of what it would mean for Nvidia, but also in the implications for the thousands of businesses around the world that rely on Arm's technologies to make chips.

For Nvidia, the ambition is clear. If the deal closes, the company aims to sell Nvidia's technology through Arm's network of partners, create a full data-center platform that combines ARM server chip tech with Nvidia's own data-center products and participate in "inventing the future" of cloud-to-edge computing, Huang said last year in an investor conference call.

"We've invested so much across all of these different areas that we felt that we really had to take the opportunity to own the company and collaborate deeply as we invent the future," Huang said.

But more than a year after Nvidia announced the acquisition, the deal remains mired in regulatory limbo. And on Wednesday, Nvidia received some unwelcome news.

The European Commission said that it plans to initiate an in-depth probe of the deal's implications that could last months. Other competition authorities in the U.S., U.K. and China are still chewing over the potential drawbacks and benefits of putting Arm's valuable chip designs in Nvidia's hands.

A Nvidia spokesman said that regulatory processes are confidential but that the deal will boost competition and innovation, and transform Arm. They also said Nvidia plans to work with EU regulators to address the specific concerns raised Wednesday.

Those discussions with regulators are evidently not going as well as executives had hoped: Nvidia has had to push back its early 2022 timeline for the deal closing, and if the deal doesn't close by September 2022, SoftBank gets to keep a $1.3 billion breakup fee. Nvidia CFO Colette Kress has said before that the deal would be delayed, but hasn't issued a fresh estimate.

An arm and a leg

Attempting to secure the blessing of four governments sometimes at odds with one another was always going to be a tough fight.

The issues that Europe's competition regulator articulated echo what industry insiders have said publicly and privately about the potential pitfalls of giving Huang and Nvidia control over the Arm designs. Those designs power billions of mobile devices, autos, laptops, data centers, video game consoles and the dozens of other products that now rely on chips.

The major fear is that should the deal close, Nvidia would have the theoretical ability to raise the prices of Arm's core designs, or choke off access for Nvidia's competitors to Arm's tech altogether.

"It represents a huge transfer of intellectual property," VLSI Research's Risto Puhakka told Protocol. "The reason is that the Arm intellectual property is used by every company in every industry. Any piece of electronics you pick uses Arm."

Concerns over Arm's independence — historically one of the selling points of the company's technology — are also shared by big tech companies based in the U.S. Cristiano Amon of Qualcomm, which has designed chips based on Arm's technology used in many popular smartphones, has opposed the deal. Alphabet and Microsoft, both of which also license Arm designs, have voiced opposition too, among others.

Big Tech companies take issue with Nvidia's ownership because it would theoretically get a first look at whatever technology Arm develops, giving it an edge over the competition, Bernstein chips analyst Stacy Rasgon told Protocol. Nvidia would also theoretically have a much better idea of the future plans of many of its competitors that also use Arm's technology.

"So what you have is a lot of global licensees who would not be terribly thrilled to see Nvidia, or, frankly, any current licensee buy it," Rasgon said. "[Arm] is valuable because it is independent."

'An era of techno-nationalism'

The deal does have some supporters among big companies: Infrastructure chip makers Broadcom and Marvell Technology have come out in favor, as has smart home device company MediaTek. But those companies are clearly outnumbered by the deal's detractors.

Beyond corporate interests, the EU also said it is concerned with whether a Nvidia-owned Arm would alter its research and development focus toward whatever is most profitable for Nvidia, leaving Arm's ecosystem by the wayside.

The U.K. has raised a separate set of concerns. Former digital secretary Oliver Dowden is worried about national security — a consistent refrain when discussing chips amid global buyers of semiconductors, whose demand vastly outnumbers the available chip supply. The U.K.'s Competition and Markets Authority has also said it wants an in-depth probe of the deal.

Several industry watchers have pointed out, however, that national security concerns don't necessarily make sense because Japan-based SoftBank already owns Arm.

"Having them in separate countries is a good thing when people are anxious about the idea that countries actually might restrict access to technology as a part of this big geopolitical concept of having them under control," said Steven Weber, a professor at UC Berkeley. Arm is one of the tech giants of the U.K., and he thinks it is unlikely that the country would be willing to let an American business buy it because "we're living in an era of techno-nationalism."

Should Huang and Nvidia find a way to get the deal over the finish line, it would transform the company from one that generates $17 billion a year in revenue into a business that could challenge Intel's $78 billion in annual sales.

The combination of its graphics processors (increasingly used in artificial intelligence applications), Arm's central processor designs and the company's recent acquisition of the Mellanox networking business would give it the tech needed to challenge Intel. Combine that intellectual property with the manufacturing prowess of key partner TSMC and Intel's recent struggles, and Huang's bold bet is at least within the realm of possibility.

But according to Rasgon and several other industry experts interviewed by Protocol, the deal isn't plausible.

Nvidia needs to overcome too many interests working against it to realize the changes it wants to see in the semiconductor industry. And should the U.K., EU and the U.S. regulators all somehow sign off on the transaction, the deal would still need approval in China as well. There, geopolitical interests could trump concerns over business, and a yet unresolved conflict with former Arm China CEO Allen Wu may throw a wrench into its plans. Wu didn't respond to a request for comment.

"I don't think it closes," Rasgon said. "I don't think anybody really believes they're going to close it."


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