Opposition Mounts to Nvidia’s Bid for Arm

Chipmakers quietly object to the acquisition

In the wake of Nvidia’s bid to acquire Arm for $40 billion, announced on 14 September 2020, the silence has been deafening. Despite widespread concerns about the implications of the deal for Arm’s long-standing neutrality, the Arm ecosystem remained largely mute. In our view, the move will compromise Arm’s long-term independence, despite Nvidia’s best intentions, as the need to deliver a return on its investment creates pressure to use Arm technology in competition with licensees.

Arm licensees probably concluded that there’s little to gain from being publicly vocal, given the size of the bid and its potential to have an adverse long-term impact on them. Instead, they’re quietly preparing objections and filing them directly with the relevant regulators including the US Federal Trade Commission (FTC), the European Commission and the UK Competition and Markets Authority. Their actions underline our long-held belief that Nvidia undertook little consultation with licensees prior to its $40 billion bid. Moreover, several licensees view the move as damaging to the future of a technology that has flourished because of Arm’s independence.

Recent reports that Alphabet, Microsoft and Qualcomm are among those that have raised objections build on developments since late December 2020, when the FTC issued a second request for internal documents relating to the acquisition. This level of scrutiny is unusual in a “vertical” acquisition of two companies providing different supply chain functions. It means that documentation found as part of the investigation will be made available to all relevant regulatory bodies. It’s our assumption that the second request was sparked by FTC concerns underpinned by opposition to the deal, and this is now becoming more widely visible in media reports.

Nvidia argues robustly that the deal is in the interests of the Arm ecosystem. It has consistently said that it doesn’t compete with Arm licensees and that it stands to significantly increase the value of Arm through the addition of Nvidia intellectual property to the benefit of licensees.

Part of the problem with this argument is the breadth and complexity of the Arm ecosystem. The huge number of uses for Arm technology — more than 160 billion Arm chips have shipped to date — and the wide range of licensees with different business motivations means that the deal may help one licensee but hurt another. We remain concerned that Nvidia’s broad business interests in artificial intelligence, automotive, edge computing and the Internet of things will inevitably clash with those of a host of companies seeking to compete with Arm technology. Indeed, Graphcore’s statement in opposition to the deal shows it’s not just large licensees that are protesting.

Nigel Toon, CEO at Graphcore, said that the acquisition “risks closing down or limiting other companies’ access to leading-edge CPU processor designs, which are so important across the technology world, from data centres, to mobile, to cars and in embedded devices of every kind”.

This statement reinforces our opinion that the deal threatens the long tail of Arm licensees that are innovating in areas such as artificial intelligence and edge computing, both of which are strategic priorities for Nvidia. Access to Nvidia’s intellectual property may be good for some but probably not all players, and not at any cost if it results in increased competition and more difficulty in differentiation. Smaller licensees are likely to find this particularly challenging. We expect that such a scenario would accelerate licensee commitment to RISC-V architecture as an open-source alternative.

At a broader level, it’s hard not to see Nvidia ownership as a threat to the delicate balance of Arm’s neutral position. Despite its intention to make the deal beneficial to the Arm ecosystem, the $40 billion acquisition price will inevitably push Nvidia to provide shareholders with a return on its investment, which results in competing interests with Arm licensees. We continue to view regulatory approval as an uphill struggle for Nvidia, with the better outcome for Arm being a return to a public listing. The loser in this scenario would almost certainly be SoftBank.