Nvidia's $40 billion Arm acquisition will face considerable regulatory scrutiny

  • Nvidia agreed to purchase Arm for $40 billion.
  • While Arm's intellectual property could help Nvidia expand into new business segments, the acquisition will face scrutiny from tech competitors, the UK, and China.
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In a deal with the potential to reshape the global semiconductor industry, Nvidia agreed to purchase UK-based Arm from SoftBank for $40 billion, according to The Wall Street Journal.

We wrote about the potential acquisition in July, at which point SoftBank—which purchased Arm in 2016 for $32 billion—was rumored to be exploring a sale in response to investor pressure to shore up its sprawling, beleaguered investment portfolio. 

The Arm acquisition could help Nvidia expand into the mobile semiconductor business, but it'll be difficult to do so without disrupting Arm's business model. Nvidia specializes in designing graphics processing units (GPUs), which it then sells directly to consumers and enterprises for applications ranging from video game graphics rendering to natural language processing.

Arm, by contrast, designs central processing unit (CPU) architecture, which it then licenses as intellectual property (IP) to the likes of Apple, Qualcomm, and Samsung. Arm IP is used by 90% of global smartphone manufacturers, which is a large reason why it would be an attractive way for Nvidia to expand into a new business segment.

But doing so would create a conflict of interest, since Nvidia would then compete directly against the same companies that license Arm's CPU architecture. Nvidia could attempt to address these concerns by creating a firewall limiting communication and collaboration between the two companies, but this would limit the upside of the acquisition in the first place. 

Besides tech competitors, the UK and China have a vested interest in Arm's future, which will make it even more difficult for Nvidia to win regulatory approval. When SoftBank originally agreed to acquire Arm, UK officials only let the deal proceed after SoftBank guaranteed that it would keep Arm headquarters in the UK and double UK-based staff over the course of five years.

These commitments are jeopardized by the potential Nvidia takeover, which could spur the UK government to hold up the acquisition until all parties reach a new set of terms. Of much greater concern to Nvidia is China's interest in Arm: China only allowed Arm to operate in its borders as part of a joint venture, aptly named China Arm, which is majority-owned by Chinese interests.

In May 2020, as US-China relations deteriorated, China Arm stopped taking orders from the UK parent company, as China Arm refused to oust CEO Allen Wu. In August, China Arm issued a statement affirming its foremost commitment to China's interests, and reportedly banned members of UK Arm from its premises, per Bloomberg. The Chinese government most certainly won't want Arm to fall to a US-based tech giant, and with considerable IP in the hands of China Arm, Nvidia risks losing the China Arm ownership stake entirely if the deal goes through.

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