Nvidia exits from its proposed $40B acquisition of Arm

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Nvidia is walking away from its proposed $40 billion acquisition of British chip designer Arm.

The deal caught the attention of global regulators with anti-competition investigations launched in several jurisdictions including the UK, EU, and US.

In November 2021, UK Digital Secretary Nadine Dorries decided to block the merger pending the results of a 24-week ‘Phase 2’ investigation.

With the merger looking almost impossible to be approved by regulators, Nvidia has decided to throw in the towel.

Jensen Huang, Founder and CEO of Nvidia, said:

“Arm has a bright future, and we’ll continue to support them as a proud licensee for decades to come.

Arm is at the centre of the important dynamics in computing. Though we won’t be one company, we will partner closely with Arm.

The significant investments that Masa has made have positioned Arm to expand the reach of the Arm CPU beyond client computing to supercomputing, cloud, AI, and robotics.

I expect Arm to be the most important CPU architecture of the next decade.”

Arm has struggled from relatively flat revenues and rising costs despite the huge success of the company’s licensees such as Apple, Qualcomm, and Amazon.

SoftBank, Arm’s current owner, considered and subsequently rejected the idea of pursuing an IPO (Initial Public Offering) of the company in 2019 and again in early 2020.

“We contemplated an IPO but determined that the pressure to deliver short-term revenue growth and profitability would suffocate our ability to invest, expand, move fast, and innovate,” explained Simon Segars, CEO of Arm, last month.

Following the collapse of the Nvidia acquisition, Softbank will now have to reconsider an IPO for Arm.

Dr Lil Read, Analyst in the Thematic Research Team at GlobalData, commented:

“Softbank now needs to think of Arm’s future. An initial public offering (IPO) looks likely – the UK government would surely like to see the home-grown chip designer float in London, and potential IPO reforms could create the perfect environment for this. 

Otherwise, Arm may be ripe for a takeover by a private equity consortium backed by chip-friendly giants such as Apple, Qualcomm, and TSMC – Arm’s largest customers.”

Some of Nvidia’s rivals are said to have offered to invest in Arm if it helps the company to remain independent. A takeover from a private equity consortium looks to be Arm’s best option. If the company has to launch an IPO, it could struggle and will face some difficult choices.

Arm’s largest market, mobile, is saturated. The company will struggle to crack the datacentre and PC markets in the face of strong incumbents like Intel and AMD that have established ecosystem of developers, software, systems, and peripherals, and profits that enable them to make large R&D investments.

In an earlier response to the UK’s Competition and Markets Authority, aiming to quell the regulator’s fears about its acquisition of Arm, Nvidia wrote:

“Nvidia is particularly concerned that these pressures would drive Arm to deprioritize datacenter and PC and to instead focus on its core mobile and growing IoT businesses.

The result would be a concentrated CPU market largely controlled by Intel/AMD (x86).”

Capital markets would likely expect Arm to cut costs to maximise the company’s value. However, SoftBank sounds bullish on its prospects.

“Arm is becoming a centre of innovation not only in the mobile phone revolution, but also in cloud computing, automotive, the Internet of Things, and the metaverse, and has entered its second growth phase,” said Masayoshi Son, Representative Director, Corporate Officer, Chairman, and CEO of SoftBank Group.

Arm has announced a management shake-up in the wake of Nvidia’s exit from the deal.

Rene Haas, the former head of Arm’s intellectual property unit, will take over as the company’s chief executive and lead it during these challenging times. Haas previously worked at Nvidia for seven years.

With the Nvidia acquisition off the table, we can only hope that Haas finds a way to ensure Arm can continue to deliver the semiconductor innovation that it has for three decades.

(Photo by Dustin Tramel on Unsplash)

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