The potential Nvidia-ARM acquisition has been in the news this fall, with Nvidia offering the EU concessions that court its approval for the deal. Worth US$40 billion, the deal to buy ARM from Japan’s SoftBank will be the biggest the semiconductor industry has ever seen — if it goes through.

This article was written as Nvidia was awaiting the EU’s decision, due by Oct. 27. At the time of writing, the European Commission was still seeking feedback from competitors and customers of the two businesses. Its options are to accept the concessions, demand more concessions, or open a four-month investigation, with the investigation seeming most likely. We don’t know what Nvidia has proposed in its bid to get the EU’s blessing; such details are normally kept secret ahead of an announced decision.

ARM is broadly regarded as a jewel in the U.K. technology crown. Earlier this year, Hermann Hauser — a founder of Acorn Computers, which spun out ARM — voiced concern over the acquisition, saying he was worried that ARM’s headquarters might be moved to the U.S. Nvidia has since repeated its commitment to maintaining ARM’s headquarters in the U.K. In a further show of commitment to the U.K. tech industry, Nvidia has announced plans to build a US$100 million supercomputer in Cambridge (separate from ARM). The supercomputer will support British pharmaceutical giants GSK and AstraZeneca as well as cutting-edge research by NHS organizations.

Nevertheless, the Nvidia-ARM deal is also under scrutiny from the U.K. government’s Competition and Markets Authority (CMA). Phase 1 of the CMA’s investigation was prompted by unspecified “national security fears.” This phase kicked off in April and asked for comments from competitors and customers; the report noted complaints from ARM customers who compete with Nvidia and are concerned that Nvidia could restrict access to ARM’s cores to further its own position. Nvidia has offered “behavioral remedies” to ensure that rivals can access ARM’s IP, but the CMA said the proposal did not alleviate its concerns. It therefore launched Phase 2, an in-depth probe that began in August.

There are many vocal critics who do not want ARM in Nvidia’s hands. British semiconductor unicorn Graphcore, a direct competitor of Nvidia, is in the “against” camp, with Graphcore CEO Nigel Toon telling the Financial Times the deal would be “bad for competition, bad for the market overall, and bad for Britain.”

Cristiano Amon, CEO of Qualcomm (an ARM customer and Nvidia competitor), has openly questioned the potential neutrality of an Nvidia-owned ARM. Other concerns have come from Samsung and Apple. Google and Microsoft, potential adopters of the ARM architecture in the data center, are also reportedly against the deal.

On the other hand, public support for the Nvidia-ARM transaction has come from ARM customers Broadcom, MediaTek, and Marvell.

What’s next? The U.S. Federal Trade Commission and China’s State Administration for Market Regulation are both scrutinizing the deal. The Financial Times has reported that Nvidia submitted an application to Chinese regulators sometime in the second quarter but that the review could take 12 to 18 months. An 18-month review process would put the acquisition outside Nvidia’s extended target for closing the deal, which is September 2022.

Will the Chinese ultimately approve the transaction? Chinese customers account for a significant portion of ARM’s sales, and some may have concerns about handing control of ARM to a U.S.-based company as trade tensions persist between the two countries. And if ARM headquarters moved to the U.S. (despite Nvidia’s assurances to the contrary), ARM would be subject to U.S. law — and thus, potentially, to controls on sales to certain customers in China.

Let’s not forget that in 2018, it was the Chinese regulators who nixed the Qualcomm-NXP deal, which at the time was the biggest proposed acquisition in semiconductor history. Could history repeat itself here?

Nvidia’s target to close the deal is March 2022, with a possible extension to September 2022. If the deal falls through, ARM has several options, assuming SoftBank still wants to recoup its investment. One would be an IPO: ARM could list on the London Stock Exchange. Another option, proposed by Qualcomm’s Amon, would be for an industry consortium to buy ARM in order to keep it neutral. Right now, that avenue seems a little far-fetched.

ARM’s future rests on decisions from regulators in the EU, U.K., and China — and on those decisions being made before September 2022. Citigroup analysts have raised their estimation of whether the deal will go through to 30% following the statements of support from the ARM customers mentioned above. Chinese regulatory approval remains the biggest hurdle, and September 2022 does not seem that far away.

By: DocMemory
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