Nvidia’s acquisition of Arm “highly unlikely”, analyst says

Jen-Hsun Huang, President and CEO of Nvidia Corp., speaks during the company event at the Mobile World Congress Americas in Los Angeles on October 21, 2019.

Patrick T. Fallon | Bloomberg | Getty Images

Nvidia’s $ 40 billion acquisition of British chip designer Arm looks increasingly unlikely, according to Gartner semiconductor analyst Alan Priestley.

The deal faces a growing number of regulatory investigations around the world, Priestley said, highlighting concerns in the UK, EU, US and China.

“I think it’s highly unlikely that will happen,” Priestley told CNBC on Wednesday. Nvidia and Arm did not immediately respond to a request for comment from CNBC.

The deal was due to be concluded by March 2022, but Nvidia CEO Jensen Huang admitted in August that it would likely go beyond that date.

Arm was formed from an early computer company called Acorn Computers in 1990. The company’s energy-efficient chip designs are used in 95% of the world’s smartphones and 95% of chips made in China. The company, acquired by Japanese firm SoftBank in 2016 for £ 24 billion ($ 32 billion), licenses its chip designs to more than 500 companies that use them to make their own semiconductors.

Critics fear that the merger with Nvidia – which designs its own chips – will restrict access to Arm’s “neutral” semiconductor designs and could result in higher prices, less choice, and reduced innovation in the industry. industry. But Nvidia argues that the deal will lead to more innovation and that Arm will benefit from increased investment.

Circle of regulators

While US chip giant Broadcom has spoken out in favor of the deal, many others are against it.

Rival Qualcomm has said Nvidia may limit the supply of Arm’s technology to competitors or raise prices. Google and Microsoft have raised the same concerns with regulators, according to Bloomberg.

In November, the UK government announced it wanted a full investigation into the buyout of Arm, which is headquartered in Cambridge and widely regarded as the crown jewel of Britain’s tech industry.

Digital and Culture Secretary Nadine Dorries has ordered a “phase 2” investigation into the deal. The investigation – which will be conducted by the Competition and Markets Authority over a 24-week period – will investigate antitrust issues and national security concerns.

In the United States, the Federal Trade Commission is also concerned about the deal. In a fourth quarter earnings call, Nvidia said it was in talks with the agency about “solutions to address these concerns.”

Meanwhile, the European Commission, the EU’s executive body, launched its own in-depth investigation into the deal in October.

“Although Arm and Nvidia are not in direct competition, Arm’s intellectual property is an important input in competing products with Nvidia’s, for example in data centers, automotive and the Internet of Things. “, Said Margrethe Vestager, Executive Vice President of the European Commission, in a statement. declaration. “Our analysis shows that the acquisition of Arm by Nvidia could lead to restricted or degraded access to Arm’s intellectual property, with distorting effects in many markets where semiconductors are used.”

In China, the state-backed Global Times newspaper said the deal was “disturbing” and urged regulators to treat it with caution.

Arm the IPO?

People are wondering if the deal would be cleared by regulators since it was first announced.

Last October, tech investors Ian Hogarth and Nathan Benaich were among the first to publicly predict that it would be blocked.

“We wouldn’t be at all surprised if this were blocked by someone,” Hogarth, who sold his start-up Songkick to Warner Music Group before becoming an angel investor, told CNBC.

Kings College, Cambridge is pictured deserted due to the coronavirus outbreak.

SOPA Images

Speaking to CNBC this week, Gartner’s Priestley said SoftBank would likely try to list Arm on the stock exchange if the deal with Nvidia fails.

“They’ll probably try to go public,” he said.

The London Stock Exchange and New York’s Nasdaq Stock Exchange are two potential destinations for listings, but Priestley said he was not sure how Arm would fare on his own.

“The problem Arm has, and this is the problem SoftBank faces, is how it generates its revenue,” Priestley added. “IP licenses are good, but it’s really hard to get them. “

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