Is the NVIDIA-Arm Deal Dead in the Water?
With in-depth reviews opened by international market authorities and staunch opposition from rival vendors such as Google and Microsoft, things are beginning to look tenuous for the historic $40 billion deal.
The U.S. Federal Trade Commission (FTC) recently began an in-depth review into NVIDIA's planned $40 billion acquisition of chipmaker Arm from SoftBank Group, one of many that are currently ongoing worldwide as market authorities look into a deal that will have a far-reaching impact across the entire electronics and tech industries.
Arm's headquarters in Cambridge, England. Image used courtesy of Office Snapshots
NVIDIA's takeover of Arm, the UK-based chipmaker that licenses its technology to firms including Intel and NVIDIA itself, has led to concerns that NVIDIA could use its position as Arm’s owner to block its rivals from accessing Arm’s intellectual property (IP).
While NVIDIA has said that it will do the opposite by retaining Arm’s neutral licensing model, critics are skeptical, and several big firms, including many rival vendors, have hit out at the deal.
Why NVIDIA Wants to Buy Arm
NVIDIA is famous among gamers for its graphics processing units (GPUs), chipsets that are used for rendering lifelike virtual worlds.
While they been seen as something of a niche market relative to “traditional” chipsets like microprocessors, GPUs have gained a stronger market foothold with emerging applications such as machine learning. As a result, major companies like Google and Facebook become customers of NVIDIA, resulting in a sharp rise in its market capitalization and overall net worth, which ended 2020 at $333.84 billion.
However, it’s in NVIDIA's best interests to diversify itself and move away from solely manufacturing GPUs. Acquiring Arm would be an effective way to do this.
Block diagram of NVIDIA's GeForce 6 GPU architecture. Image used courtesy of NVIDIA
Not only does Arm “control” over 90% of the mobile market thanks to its processor architectures (PDF), which it licenses to the likes of Samsung and Qualcomm (who in turn sell components to Apple and other big end-users, feeding into Arm’s royalties), but its technologies can also be found in almost any application that involves smart devices.
Controlling Arm would therefore give NVIDIA a wide scope to exert its influence on not only smartphones but also tablets, computers, wearables, and more. It would also help NVIDIA to hugely influence markets such as data centers and the Internet of Things (IoT).
Vendors Up in Arms
The deal could potentially put NVIDIA on a collision course with some of the world’s biggest tech companies if it were to go back on its promises after the deal and favor its own business at the expense of others.
In terms of the chip industry, Qualcomm is one of the biggest names that has publicly come out in opposition to the deal. It has registered its objections to regulators like the Federal Trade Commission, the European Commission, and the UK’s Competition and Market Authorities, among others, citing the potential for NVIDIA to become a “gatekeeper” of Arm’s chip technologies.
Block diagram of Arm's ARM7TDMI processor components and major signal paths. Image used courtesy of Arm
It has also been widely reported that the proposed acquisition is opposed by tech giants including Alphabet (Google) and Microsoft. Both of these companies manufacture their own processors and rely on Arm architectures to power them.
Meanwhile Apple—whose new M1 Mac chips are based on Arm’s chip instructions—reportedly refused an offer to take over Arm in 2020 citing antitrust concerns. However, Apple has remained silent on the pending acquisition.
Doomed to Fail?
Never before has the tech industry seen an acquisition of such a magnitude that would give one firm so much power, influence, and control. And it is looking increasingly unlikely that regulators will let it happen.
For the deal to go through, it would need the green light from several regulators, including those in the United States, Europe, and China.
In addition to the U.S. FTC opening what it calls an in-depth probe into NVIDIA's agreement to acquire Arm, which has resulted in several information demands being sent to third parties, European regulators have started conducting inquiries of their own.
The UK’s competition watchdog—the Competition and Market Authority—said in early January that it would begin a formal investigation into the acquisition. It has asked for interested third parties to comment on the deal so that it can fairly consider whether Arm will have an incentive to withdraw, raise prices, or reduce the quality of its IP licensing services should the deal be approved. The EU is also set to carry out its own investigation.
NVIDIA says its agreement with Arm was intended to "create the leading computing company for the age of AI." Image used courtesy of NVIDIA
“We will work closely with other competition authorities around the world to carefully consider the impact of the deal and ensure that it doesn’t ultimately result in consumers facing more expensive or lower quality products,” said Andrea Coscelli, chief executive of the CMA, in a statement.
It's also possible that China would refuse to approve the deal owing to the ongoing "trade war." Further, the acquisition could deal a devastating blow to China because Arm’s CPU architecture is the only one that China can still use without U.S. approval. This would severely undermine the country’s efforts to supply 70 percent of its own chip demand by 2025, so it’s possible China will also voice opposition to the merger going through.