NVIDIA prepares to drop Arm

After years of speculation and anticipation, NVIDIA is likely to let go of the $40 billion purchase of chip designer Arm, reports Bloomberg, citing people familiar with the matter. 

The publication said NVIDIA is telling its partners that it is most likely to back out from the deal, while SoftBank (Arm’s owner) is reportedly looking to take Arm public via IPO as an alternative way to profitability, indicating a plausible exit from the company. However, IPO would not fetch much to what NVIDIA is offering. Arm was acquired by Japan’s SoftBank for £23.4 billion ($31.4 billion) in 2016. 

After four years, in September 2020, SoftBank initiated the sale to make up for the losses it had incurred from WeWork and Uber, i.e. close to $17.7 billion. As part of the deal, NVIDIA had paid $2 billion in cash at the time of signing, including a $1.25 billion breakup fee that goes directly into SoftBank’s pocket irrespective of deal or no deal. The remaining cash went to Arm for ‘licensing consideration,’ as per NVIDIA’s filings with the US Securities and Exchange Commission (SEC). 

While NVIDIA can afford to lose $1.25 billion, it is yet to tackle the mounting regulatory hurdles. The controversial NVIDIA-Arm deal has been under scrutiny by the UK government for security concerns for quite some time now. The deal has also been on the radar of British and European competition watchdogs since its announcement of purchasing Arm in September 2020. Last year, the US federal trade commission sued the NVIDIA-Arm deal. Meanwhile, Chinese regulators are also delaying the process, scrutinising thoroughly. 

The NVIDIA-Arm deal was set to be completed by March 2022. However, in August last year, NVIDIA’s chief Jensen Huang admitted that it would probably go beyond that date. Huang told the Financial Times that their discussion with regulators took much longer than initially expected. “But, we are confident in the deal; we are confident regulators should recognise the benefits of the acquisition,” he added. 

Moving past the speculation, based in Cambridge, UK, Arm currently licences its chip architecture and blueprints to major chipmakers, including NVIDIA, Foxconn, Qualcomm, Samsung Electronics, Google, Zoom, etc. Most of them are against this acquisition as it gives NVIDIA the edge over others in the semiconductor landscape. Since Arm’s business is known for its neutrality, the acquisition could disrupt that for other players in the market. 

Miraculously, if the deal goes through, this would be one of the biggest acquisitions in the world this year, propelling NVIDIA to the forefront of the semiconductor industry. However, Gartner semiconductor analyst Alan Priestley said it is highly unlikely to go through, pointing at the increased regulatory concerns globally, including the UK, the EU, the US and China. 

This is not the first time. In 2018, Qualcomm and NXP Semiconductors fell through after Chinese regulators objected to the $44 billion acquisition deal. So the question is, will NVIDIA-Arm also face a similar fate?

Conversely, neither NVIDIA nor SoftBank has officially stated anything to indicate the fall through of the deal. Speaking to Bloomberg, a spokesperson for SoftBank said that they are hopeful that the translation will go through. 

Bob Sherbin, VP of corporate communications at NVIDIA, on the other hand, said that this transaction provides an opportunity to accelerate Arm and boost competition and innovation, referring to the views expressed in their latest regulatory filings.