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NVIDIA's $40 Billion Bid for Arm Falls Apart Under Regulatory Pressure

Feb. 8, 2022
The NVIDIA deal to buy Arm is no more. Both sides concluded that regulatory opposition around the world would make it tough to get approval.

NVIDIA has canceled its $40 billion bid to buy Arm due to regulatory pressures, the company said Monday, ending its year-and-a-half-long pursuit of one of the most important players in the semiconductor market.

As a result, SoftBank, Arm’s current owner, announced that it now plans to return Arm to the stock market through an IPO. SoftBank said that it plans to complete the IPO process by the end of March 2023.

NVIDIA announced the acquisition in late 2020, looking to take control of the CPU technology and other intellectual property at the heart of most of the world’s smartphones and a wide range of other markets such as cars. But the deal was dogged by opposition from the start. Qualcomm and other Arm partners came out against the takeover and regulators pledged to dissect the deal before giving it the green light. 

The deal was canceled after both sides concluded that unrelenting regulatory challenges made it unlikely to get approval, SoftBank and NVIDIA said in a statement. The decision was mutual, the companies said.

“Arm has a bright future, and we’ll continue to support them” as a licensee, said NVIDIA's CEO Jensen Huang in a statement. “The significant investments that [it] has made have positioned Arm to expand the reach of the Arm CPU beyond client computing to supercomputing, cloud, AI, and robotics.” 

SoftBank also said that Simon Segars had stepped down as Arm’s chief executive after close to a decade and that he would be replaced by Rene Haas, the head of the company’s intellectual property (IP) division. 

Continental Divide

The most severe blow to the deal came last year when the U.S. Federal Trade Commission sued to block it, arguing it would hurt competition and shift the balance of power in the industry in ways that would unfairly favor NVIDIA. The U.S. said the deal would have given Nvidia too much control over chip designs used by the world’s largest semiconductor firms to develop chips that in some cases compete against NVIDIA's. 

Arm, which was founded in 1990, has never competed with its customers, winning the title of “Switzerland” of the semiconductor industry. But the U.S. warned the NVIDIA deal would threaten Arm's neutral status.

The U.S. was not the only country to oppose the proposed deal. The European Commission, the executive arm of the EU, delayed the deal as it worked to better understand the impact of the Arm deal. It also faced a regulatory battle in the U.S., where Arm is headquartered. There was also significant uncertainty in China, which also has the power to terminate deals. Officials there had not ruled on whether to approve the deal.

The move comes two weeks after Bloomberg reported NVIDIA was preparing to abandon the deal. Some factions within the company believed that a regulatory battle could turn the tide in the company’s favor.

Long-Shot Deal

The proposed deal, which would have been the largest semiconductor deal on record, was a long shot for NVIDIA. The regulatory pressure was stoked in part by Arm customers, including Qualcomm and Microsoft.

They feared the deal would restrict their access to Arm technology, which they lack alternatives for. It would also theoretically give NVIDIA the ability to gain unique insight into chips being designed by Arm customers.

The FTC and other regulators warned that, if the deal closed, it could give NVIDIA lopsided access to Arm’s technologies, hurting its competition. It would also theoretically give it access to proprietary information it could use to hurt rivals, including by halting or delaying the development of technology features they need. This would hurt product quality, innovation, and choice while also hiking prices for customers, the U.S. said.

NVIDIA has been working to woo regulators since announcing its bid to acquire Arm. But attempting to get the green light from governments on three continents with different priorities turned out to be a challenge.

The company pledged to invest in Arm's research and development in a way that Arm would be unable to alone or post-IPO. NVIDIA also promised to preserve Arm’s independent status into the future and create “firewalls” within the combined company to keep information its customers shared with Arm confidential.

Strategy Intact

For NVIDIA, the deal falling apart is a blow to its ambitions to become a more dominant force in the $500 billion semiconductor space and expand its presence in data centers through deeper integration with Arm.

Having Arm’s designs under NVIDIA's control would have given it a vast amount of power over the future of computing. Arm sells a library of intellectual property that underpins the global smartphone ecosystem and every semiconductor maker in the world pays to use its CPU blueprints and other IP, including Intel, AMD, Qualcomm, Broadcom, as well as Apple for its M-series chips for Macs and A-series chips for the iPhone.

Arm has also lured non-semiconductor firms to its ecosystem including AWS, which taps Arm technology in its Graviton family of server CPUs. Microsoft is also reportedly developing a server CPU for its data centers. Deeper integration with Arm’s designs would further open the data center market to NVIDIA, transforming it into a more formidable rival to Intel, which has long had a stronghold in x86-based CPUs for data centers. 

But the collapse of the deal will not damage NVIDIA's prospects in the data center and its product roadmap. “NVIDIA no longer needs Arm,” said Lil Read, a technology analyst at market research and analytics firm GlobalData.

In 2020, NVIDIA overtook Intel as the most valuable semiconductor vendor in the U.S. NVIDIA has been buoyed in recent years by booming demand for graphics processing units (GPUs) for gaming and its server chips are the gold standard for handling AI chores in cloud data centers. Meta said last month that it would tap more than 10,000 of NVIDIA's Ampere GPUs for the brains of its sprawling new supercomputer for AI.

Jack Gold, the principal analyst at J. Gold Associates, said last year that it was unclear what NVIDIA wanted to get out of the deal. He said NVIDIA could further its ambitions in the data center without integrating Arm.

He said NVIDIA could continue to use Arm’s standard CPU cores and other IP in its processors, or it could take a page from Apple’s playbook and license the underlying instruction set architecture (ISA) from Arm.

Other Details

As part of the agreement, SoftBank will keep a $1.25 billion breakup fee that was prepaid by NVIDIA.

“Arm is becoming a center of innovation not only in the mobile phone revolution, but also in cloud computing, automotive, the Internet of Things and the metaverse, and has entered its second growth phase,” said SoftBank CEO Masayoshi Son.

NVIDIA said it will keep its 20-year Arm architecture license, which will allow the company to keep building and selling chips based around Arm IP and the Arm ISA. NVIDIA has been taking advantage of Arm CPU cores in other chips for data centers, such as its BlueField family of data processing units (DPUs). It is also tapping Arm to develop a data center CPU called Grace that will take on Intel and AMD’s in supercomputers.

“I expect Arm to be the most important CPU architecture of the next decade,” Huang said.

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