Nvidia will struggle to get regulatory approval for its $40 billion acquisition of Arm

Performance chip maker Nvidia wants to buy chip designer Arm, but with many of Nvidia’s direct competitors also Arm customers it’s hard to see how the deal could be approved.

The only reason we’re talking about this is that SoftBank decided a few years ago that becoming one of the world’s biggest venture capitalists was much more fun than boring old telecoms. That was all going well until the coronavirus pandemic sent global share prices down the toilet and exposed some of SoftBank’s more dodgy bets. As a result, it’s seriously strapped for cash and is forced to sell some of the family silver.

Arguably the most valuable piece is Arm, the UK firm whose chip designs are ubiquitous in mobile and other embedded computing environments. SoftBank dropped around $30 billion on it four years ago with a view to revolutionising IoT or something, but now has more pressing cashflow concerns. A 33 percent return over four years isn’t bad, but it’s not great either.

All that is irrelevant, however, if SoftBank isn’t allowed to flog the thing at all. As we touched upon when this move was first rumoured, Arm being owned by a vendor of products in the spaces it operates is an issue. Nvidia failed in the mobile chip market but in the past decade has redefined itself as a producer of high performance chips in the data centre, especially those needed for cloud AI.

Nvidia’s most recent quarterlies reveal data centre stuff is now its biggest single segment, overtaking its traditional patch of graphics chips for computers. We’re no experts on the microarchitecture of those data centre chips, but you can bet they’ve got some Arm IP in them, as will those of many other data centre chip players. The thread below explores some of the obstacles it will face.

“AI is the most powerful technology force of our time and has launched a new wave of computing,” said Jensen Huang, founder and CEO of Nvidia. “In the years ahead, trillions of computers running AI will create a new internet-of-things that is thousands of times larger than today’s internet-of-people. Our combination will create a company fabulously positioned for the age of AI.

“Simon Segars and his team at Arm have built an extraordinary company that is contributing to nearly every technology market in the world. Uniting Nvidia’s AI computing capabilities with the vast ecosystem of Arm’s CPU, we can advance computing from the cloud, smartphones, PCs, self-driving cars and robotics, to edge IoT, and expand AI computing to every corner of the globe.

“This combination has tremendous benefits for both companies, our customers, and the industry. For Arm’s ecosystem, the combination will turbocharge Arm’s R&D capacity and expand its IP portfolio with Nvidia’s world-leading GPU and AI technology.

“Arm will remain headquartered in Cambridge. We will expand on this great site and build a world-class AI research facility, supporting developments in healthcare, life sciences, robotics, self-driving cars and other fields. And, to attract researchers and scientists from the U.K. and around the world to conduct groundbreaking work, Nvidia will build a state-of-the-art AI supercomputer, powered by Arm CPUs. Arm Cambridge will be a world-class technology center.”

“NVIDIA is the perfect partner for Arm,” said Masayoshi Son, chairman and CEO of SoftBank. “Since acquiring Arm, we have honoured our commitments and invested heavily in people, technology and R&D, thereby expanding the business into new areas with high growth potential. Joining forces with a world leader in technology innovation creates new and exciting opportunities for Arm.

“This is a compelling combination that projects Arm, Cambridge and the U.K. to the forefront of some of the most exciting technological innovations of our time and is why SoftBank is excited to invest in Arm’s long-term success as a major shareholder in Nvidia. We look forward to supporting the continued success of the combined business.”

The reason they both banged on about investing in the UK so much is that the ownership of Arm has become politicised as it’s a rare example of a world-class UK tech company. Expect to see opportunist political types publicly drop generic protectionist soundbites, which the companies concerned clearly anticipate. The other group the canned quotes are directed at is Arm customers, who will understandably be alarmed by the prospect of it being owned by a competitor.

One argument Nvidia will presumably use to try to win over antirust authorities is that much of the chip tech you find in data centres is not Arm, but x86, which is owned by Intel. In this case Intel has historically placated regulators by licensing the tech to AMD, thus generating competition in the CPU space, so maybe there’s a compromise in that direction.

Regardless, this process will drag on for a while, which is why the announcement anticipates 18 months for completion. That, combined with the fact that the majority of the price will be paid in Nvidia stock (up 5% at time of writing on the news, having already doubled this year), means this deal has to be about more than just SoftBank covering its speculative positions. At today’s prices it will be a 7% owner of new-look Nvidia, which seems like a pretty solid long term investment.