Nvidia’s Acquisition of ARM: A Win-Win Deal?

Nvidia's Acquisition of ARM A Win-Win Deal

The current deal appears to be a win-win for both entities. Here’s why.

Ever since Nvidia announced plans on acquiring ARM, all eyes have been on the global regulators investigating the deal. Last September, the US chipmaking giant Nvidia announced its plan to acquire UK-based ARM Ltd from Softbank group for up to US$ 40 billion.

Through this acquisition, Nvidia plans to combine its AI (artificial intelligence) computing platform with ARM’s vast ecosystem to create a premier computing company in the age of AI. SoftBank will have an ownership stake in Nvidia of under 10 percent. As part of Nvidia, ARM reportedly will continue to operate its open-licensing model while maintaining global customer neutrality in licensing its IP.

“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. The acquisition is subject to regulatory approvals from the U.K., China, the European Union and the United States. The deal is expected to be closed by March 2022 but can extend optionally to September 2022.

What’s all the fuss about?

As per the latest reports, competition regulators haven’t begun their formal review of Nvidia’s proposed acquisition. If the deal doesn’t close down by September 2022, both Nvidia and Softbank have the opportunity to cancel the investment.

The global chip crisis is affecting manufacturing in many sectors. The US-China trade conflicts, along with the coronavirus pandemic, have contributed to the current shortage of semiconductor chips. According to global research firm Gartner Inc., the worldwide semiconductor shortage will persist through 2021 and is expected to recover to normal levels by the second quarter of 2022.

If an American giant acquires ARM, Chinese companies would undoubtedly be at a considerable disadvantage in the market, given the trade conflicts. All Chinese technology companies, like Huawei, will no longer be able to access the technology. Moreover, affected companies will have to look for alternatives to US-driven platforms. In 2019, the US Department of Commerce added China’s Huawei Technologies to its “Entity List”. This limited American companies from exporting certain technologies to Huawei.

Last year, ARM’s co-founder Hermann Hauser also expressed his concern over the deal. He said that the sale of ARM would be a disaster for Cambridge, the UK and Europe. “The one saving grace about Softbank was that it wasn’t a chip company, and retained ARM’s neutrality. If it becomes part of Nvidia, most of the licensees are competitors of Nvidia, and will of course then look for an alternative to ARM,” said Hauser to BBC.

A win-win deal for Nvidia & ARM?

Acquiring another company in the same industry can lead to a monopoly, which is highly discouraged by many governments as it cuts the competition. However, if the target company is a leader in its industry, the acquisition will allow the acquirer to expand into a new market.

The acquisition of ARM has allowed Nvidia to venture into the data center and cloud computing market, which is expected to grow remarkably. According to Patrick Moorhead, founder and principal analyst of Moor Insights & Strategy, the Nvidia-ARM deal “fits like a glove.” ARM plays in areas that Nvidia does not or isn’t that successful, while NVIDIA plays in many places ARM doesn’t or isn’t that successful.”

Expansion Into New Markets: SoftBank has had a rough time owing to many investments that have operated losses (ie, WeWork, Uber, OneWeb). The Nvidia-ARM deal will help SoftBank secure significant funds, more than it invested in Arm in 2016 ($32 billion). Under Softbank’s leadership, ARM invested heavily in new chip technologies, allowing the company to enter new markets such as 5G networks and cloud computing. But to lead in AI, ARM will need to expand its scope, business and invest in new technologies. And, this is where Nvidia will come into play.

Access to Resources: ARM is the leading technology provider of processor IP, offering its customers the broadest range of processors. At the Six Five Summit held in June, ARM CEO Simon Segars said that through the combination with Nvidia, ARM would have a lot more resources to bear in creating an even richer portfolio of IP, and there’s no way that they can do that on their own.

Control Over ARM’s Market: ARM captures 90 percent of the smartphone and IoT market (including key licensees like Apple, Qualcomm, Samsung, MediaTek, and others). If the deal completes, Nvidia will boost its position smartphone, tablet, and internet-of-things (IOT) hardware segment. The company will also have access to a vast network and ecosystem of ARM partners.

Both Nvidia and ARM are a leader in their sector. The deal will secure Nvidia’s position as a monopoly in the field of computing along with AI.

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