In a Historic $40 Billion Deal, NVIDIA Acquires Arm Amid Potential Backlash from Chip Industry
What are the implications of NVIDIA both competing in the Arm market and now, owning Arm itself?
In an official press release yesterday, September 13th, Arm Holdings announced that its owner, SoftBank Group Corp (SBG), had completed talks with NVIDIA to close a $40 billion cash and stock acquisition deal. This means the UK-based chip giant’s vast computing ecosystem will merge with NVIDIA's leadership in artificial intelligence (AI) to drive innovation for all customers and create “a premier computing company for the age of AI."
Arm's headquarters in Cambridge. Image used courtesy of Office Snapshots
Although the announcement bumped NVIDIA's share price by over 5% when markets opened this morning, it’s not all good news. This acquisition is unlike any other that the industry has previously seen and, according to analysts, NVIDIA is facing potential backlash from both the UK government and industry rivals.
A Controversial Deal
It's been only a few years since Arm was sold to SBG. The deal, which closed at a cool $32 billion, didn’t exactly raise any eyebrows. So, what’s the problem this time? Why has this acquisition by NVIDIA led to widespread discomfort and backlash?
NVIDIA's acquisition of Arm closed for $40 billion yesterday, sending shockwaves across the industry. Image used courtesy of NVIDIA
SBG is merely a holding company and has little involvement in the chip industry whereas NVIDIA is directly involved in the chip industry as a manufacturer of graphics processing units (GPUs) and other technology. Arm also plays a huge role in the chip industry as the company behind the Arm architecture, which it licenses out to other companies—many of whom are NVIDIA's competitors—for a fee.
These companies, which include the likes of Apple, Broadcom, Intel, Qualcomm, and Samsung Electronics, build their own chips around Arm's architectures. In fact, there’s a good chance that if you’re reading this article on a phone or tablet, it has Arm architecture at its core.
A Possible Conflict of Interest for NVIDIA?
Although NVIDIA's dominance is primarily centered around its GPUs, the company has been toying with hardware production that targets AI applications (much like other big chipmakers have) such as its Jetson boards for “next-generation autonomous machines,” which feature an Arm architecture. NVIDIA is diversifying, and its acquisition of Arm raises several questions concerning impartiality and neutrality.
Arm's architecture appears in manifold designs, from machine learning to embedded devices. Image used courtesy of Arm
Indeed, there is an obvious conflict of interest given that NVIDIA both competes in the Arm market and now, owns Arm itself. What this conflict could mean and lead to is anyone’s guess, but one possibility is that companies may switch from the Arm ecosystem to RISC-V en masse. Another is that the UK government may impose restrictions as it did in 2016 when SoftBank acquired Arm. It’s impossible to say what the fallout will be, or indeed if there will be any at all.
However, there has been some political backlash that began prior to the deal closing, with the UK Shadow Business Secretary, the Rt. Hon. Ed Miliband MP, warning that the government must intervene. The opposition party has since reaffirmed its position, calling on the government to clarify whether the takeover has legally binding assurances.
How the Merger is Set to Play Out
According to NVIDIA, Arm’s open-licensing model and IP licensing portfolio will continue as normal while benefitting from NVIDIA technology, with clear, strong assurances on the front of customer neutrality. In short, NVIDIA will not attempt to abuse its position as the owner of Arm to compete unfairly.
NVIDIA also plans to expand Arm’s R&D presence in Cambridge, UK, with the development of a new world-class AI research and education center. NVIDIA also plans to build an Arm/NVIDIA-powered AI supercomputer for “groundbreaking research,” reads NVIDIA's press release.
The new research center aims to create a supercomputer, research fellowships and partnerships, AI training, a startup accelerator, and industry collaboration. Image used courtesy of NVIDIA
This should stave off worries that NVIDIA plans to pull Arm’s UK presence and move operations in the short-term. But without government intervention, there is nothing to prevent this in the long-term, and such practices are not without precedent.
Potential R&D Benefits of the Merger
Naturally, NVIDIA has been quick to address the positives of its deal. “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,” said NVIDIA founder and CEO Jensen Huang. He went on to stress that “Arm will remain headquartered in Cambridge.”
NVIDIA's "Endeavor" location in Santa Clara, California. Image used courtesy of NVIDIA
As per the terms of the deal, NVIDIA will pay $12 billion in cash and $21.5 billion in NVIDIA's common stock to SoftBank in cash. At closing, the number of NVIDIA shares to be issued is 33.4 million. NVIDIA will also pay $1.5 billion in equity to Arm employees.
Of course, the proposed deal is subject to closing conditions, including regulatory approvals in the UK, China, the European Union, and the United States. The deal is expected to be finalized and completed within the next 18 months.