The news that Nvidia has acquired ARM Holdings, the UK-based chip supplier, has sparked a wide range of opinions from both sides of the debate. In this article we will explore the challenges facing the deal in a range of countries, as well as some of the key issues that should be addressed to ensure that this merger goes smoothly.
When SoftBank paid $32 billion to buy British semiconductor designer ARM Holdings last year, it was the largest acquisition of a European technology company by a Japanese firm. But it's also a big gamble, a sign of SoftBank's commitment to future tech trends. And it's not the first time SoftBank has made a big bet.
In June, SoftBank unloaded an $8 billion stake in Chinese e-commerce giant Alibaba. The deal was the latest example of SoftBank's aggressive investment strategy. The company has also invested in Uber and WeWork. Now it's getting serious about accelerating ARM's growth. The acquisition of ARM will enable SoftBank to expand its mobile business, and it will
put the company in a better position to enter the automotive market. The acquisition also will help the company maintain its global customer-neutral approach. While the transaction is not yet completed, it is expected to be completed in the third quarter of 2016. SoftBank plans to continue ARM's existing headquarters in Cambridge, which includes the leadership of key corporate functions. However, it will make its mark in the United Kingdom and other territories, where it will double the number of ARM employees over five years.
The acquisition is also expected to increase SoftBank's presence in the U.K., where it has already built up a substantial stake in the telecom Sprint. It will also enable the company to invest in engineering talent.
The deal is also a reminder that ARM and SoftBank are not competitors. They both produce chips that power smart devices, from drones to cloud services. They also operate an open-licensing model. And they may be well positioned to capitalize on the “internet of things” – the ubiquity of connected objects.
While the FT reported the deal was afoot on the weekend, the figures were a little off. And the SoftBank Group shares were not traded Monday, which means the deal will likely be completed sometime in March 2022. The deal is expected to be worth between $32 and $40 billion, which makes it the largest semiconductor acquisition of a foreign company by a Japanese firm.
Nvidia's commitments to keep Arm's headquarters in the UK
In September 2016, Japanese conglomerate SoftBank bought British technology company Arm. SoftBank committed to keeping the company's headquarters in Cambridge until 2021 and to increasing employment by doubling the number of UK workers in the next five years.
The deal raised a number of concerns among global technology companies, and the UK government has been looking into the implications of the sale. In January, the Competition and Markets Authority began a thorough investigation of the deal. It is expected to report by July. It will look into the effects of the deal on competition and national security, and consider whether the price of the company's services and products should rise.
The deal is also likely to face opposition from Labour and the Science and Technology Workers' Union. Several leading figures in the Cambridge technology sector have called on ministers to intervene. Some people argue that the acquisition would lead to a dominance of the UK tech industry. Other critics fear that Nvidia would use Arm to create a monopoly. Other fears include that customers would be forced to pay more for their chips because of the new owners.
The UK government is considering more active industrial policy, including whether to intervene. Some of the companies that might be affected by a takeover include Facebook, Netflix, Apple and Amazon. The Labor Party has called for the government to step in to prevent the takeover. Among the most prominent critics of the deal is Arm co-founder Hermann Hauser. He has written an open letter to Prime Minister Boris Johnson, urging the government to prevent the takeover.
As the deal is currently being considered, the UK's Competition and Markets Authority is assessing the impact of the takeover on competition and national security. The Competition and Markets Authority has been focusing on price increases and reductions, service cuts, and the incentives for the companies involved.
It is possible that the UK government could intervene on other grounds, such as national security, if it finds that it is necessary. In the past, the government intervention threshold has been around 25% of the value of purchases from the U.K.
Challenges with the deal in multiple countries
When Nvidia announced its plan to acquire ARM, a chip designer, in October 2017, the deal was met with a huge amount of opposition. Several analysts said that the deal would fail from the start. The deal, valued at $40 billion, faced challenges in both the United States and the United Kingdom. The US Federal Trade Commission sued the deal in December, and the UK's Competition and Markets Authority launched an investigation into the deal a month later.
Similarly, China's regulatory authorities are gearing up for a long and thorough investigation into the deal. The deal is likely to close with less than 1% of the votes in its favor. But the biggest challenge may be the fact that a foreign company would be controlling a major slice of the UK ARM business. A foreign company taking over a domestic technology company could spell disaster for the sector. For starters, a merger between two companies is often difficult to pull off. This is especially true when it involves the acquisition of a company that is a decade or more old.
It is also important to consider the role that the government plays in the approval process. It is possible that the UK government could block the deal on national security grounds. It has not been clear how the government will go about this, but the possibility is that the UK will either approve the deal or halt it altogether. The Ministry of Defence may view sudden intervention as an appropriate response to an apparent threat to national security.
Another challenge that has emerged is the question of how Nvidia plans to integrate its newly acquired ARM technology into its existing product line. The semiconductor manufacturer plans to use the RISC-V architecture of Arm, but the company will not be able to cut off any architectural license benefits. While Nvidia has tried to move the ARM deal forward, the regulatory processes have been more complicated than it initially sounded. In addition to the usual antitrust issues, there are concerns over the supply chain stability of key components in the chip industry.
Impact on ARM's ecosystems of licensees
The upcoming Nvidia acquisition of Arm could have an impact on ARM's ecosystems of licensees. It's possible that the new firm will be less inclined to develop innovations that are beneficial to its partners and more inclined to undermine competitors. In order to avoid such a scenario, Nvidia would have to maintain its open licensing model. Moreover, the company would have to keep its intellectual property registered in the U.K. This is a significant change for a firm that has a reputation as the “Switzerland of semiconductors.”
If the combined firm were to become the world's largest provider of chips, it would likely stifle technological advancements and innovations that benefit its partner's products and services. In addition, it would have a significant impact on the competition for innovation and development of the next generation of products. Nvidia's proposed $40 billion acquisition of Arm could have a serious impact on the future of Arm. It's true that Arm's licensees depend on the company's support for their product development. But this is not the same as supplying finished chips to device makers.
Nvidia would gain access to the competitively sensitive information of Arm's licensees. This information is crucial for facilitating development and support. But it's also potentially dangerous, as it could be used to undercut competitors or to increase the cost of its products. Nvidia has been planning to acquire Arm for more than a year. Its goal is to create a premier computing company for the age of artificial intelligence. It will build on Arm's R&D presence in the U.K. and will invest in startup incubators and training facilities for developers. The firm also plans to establish a global center of excellence in AI research at Arm's Cambridge campus.
It's also worth considering how this deal could affect Google's Tensor Processing Unit (TPU), which is responsible for machine learning features. If the new firm owns the tech, it could make it impossible for Google to continue using the Pixel Visual/Neural Core (VNC) chip. The new business model will also mean a dramatic decrease in the incentive for Arm to pursue new innovations. The firm will only be able to license its architecture designs to a wide variety of device makers, not to a single partner.