US moves to prevent Nvidia acquisition of Arm

The US Federal Trade Commission is suing to block Nvidia acquisition of Arm on fairly obvious competition grounds.

When the $40 billion piece of mega M&A was first announced it was obvious there would be serious regulatory pushback. Arm is the dominant provider of semiconductor designs for energy constrained environments. Furthermore its reduced instruction set computing (RISC – the ‘R’ in the original ARM abbreviation) is pretty much the only alternative to Intel’s x86 microarchitecture. Arm is used by every chip designers and manufacturers in the mobile and embedded space.

Nvidia is one of those designers. While its attempts to play in the smartphone game largely failed, its share price has soared in recent years thanks, in part, to successful forays into the datacentre market, where some of its chips use Arm designs. While its failure in mobile devices probably helps Nvidia mitigate claims of competitive harm from this acquisition, the fact remains that loads of tech companies, including Qualcomm and Apple, rely on Arm.

So how could it possibly be a good idea for access to those designs to be controlled entirely by a company with direct skin in the chip game? It was different when Softbank was doing the buying as it doesn’t design chips, so it had no business interest in excluding anyone from the Arm market. However much it may protest to the contrary, the same can’t be said for Nvidia.

“The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies,” said FTC Bureau of Competition Director Holly Vedova. “Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets.

“This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals. The FTC’s lawsuit should send a strong signal that we will act aggressively to protect our critical infrastructure markets from illegal vertical mergers that have far-reaching and damaging effects on future innovations.”

Here are the specific markets the FTC is worried about:

• High-Level Advanced Driver Assistance Systems for passenger cars. These systems offer computer-assisted driving functions, such as automated lane changing, lane keeping, highway entrance and exit, and collision prevention;
• DPU SmartNICs, which are advanced networking products used to increase the security and efficiency of datacenter servers; and
• Arm-Based CPUs for Cloud Computing Service Providers. These new and emerging products leverage Arm’s technology to meet the performance, power efficiency, and customizability needs of modern datacenters that provide cloud computing services.

Since the move was proposed many competition authorities, including those of the UK and EU, have decided to take a deep look at its implications. The FTC got started much earlier and this decision to sue seems to be the outcome of its investigation. It’s hard to imagine Europe approving this now and, even if it did, how can an acquisition go ahead in the face of such robust opposition from the acquirer’s domestic authorities. This deal seems very unlikely to go through now.