Arm sold to Nvidia for $40 billion

Nvidia communicated yesterday that they were acquiring chipmaker Arm from SoftBank for $40 billion, 4 years after Softbank had acquired it for $32 billion.

 

What is Arm?

Founded in 1990, Arm’s technology may not be known to you, but it is in everyone’s hands. Their technology is at the heart of most smartphones and essential in many fields, such as artificial intelligence, Internet of Things, Security and 5G. Their solutions are applied in many industries such as automotive, healthcare, retail, smart homes and cities, energy and wearables.

Arm creates computer chips that are designed so that the aquiring company can customize to it to their needs. Based in Cambridge with a joint venture in Shenzhen, it has offices all around the world. To date, over 180 million chips have been made based on its technology, with important corporate clients such as Apple, Samsung, Huawei and Qualcomm.

 

About the deal

According to the Guardian, Nvidia will pay Softbank $21.5 billion in shares and $12 billion in cash for the acquisition of the chip designer.

However, the deal will most likely be under important scrutiny from regulators in the UK and face opposition from competitors. Nvidia will most likely be asked to take protective measures for the job safety of their newly acquired employees. Indeed, when SoftBank acquired Arm 4 years ago, they had promised to keep the jobs in the UK and keep their headquarters in Cambridge.

 

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Nvidia’s vision

Nvidia is a California based company best known for its graphic cards which are very popular in the video game industry. Unsurprisingly, business has been going well in the past few months, in a world where people stayed home most of the time.

The company has great ambitions for this deal and claims that this acquisition would create “the premier computing factory for the age of artificial intelligence”.

 

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"Arm will remain headquartered in Cambridge," said Nvidia's chief executive Jensen Huang. "We will expand on this great site and build a world-class AI research facility, supporting developments in healthcare, life sciences, robotics, self-driving cars and other fields. And, to attract researchers and scientists from the UK and around the world to conduct groundbreaking work, Nvidia will build a state-of-the-art AI supercomputer, powered by Arm CPUs. Arm Cambridge will be a world-class technology center.”

 

Potential conflicts

However, this move will most likely be challenged in the industry. For Nvidia, having control over Arm – remember it provides customizable chips for many electronic manufacturers such as Apple and Samsung – means that Nvidia now has the possibility to make its own central processor chips, giving it an even more important control over the chip market.

This is also one more combatant in the US camp in the cold war trade between China and the US. China is rushing to build its own domestic semiconductor industry, while the US are doing what they can to stay in the race. With Arm in the hands of an American company, they could very well block their partnerships with Chinese manufacturers to participate in the trade war started by President Trump. Hermann Hauser, co-founder of ARM, warns that this acquisition might very well make the UK a "vassal of the US" in the East-West conflict. Neutrality was one of the key forces of Arm, and it just lost it.

 

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Geoff Blaber, vice president of research for the Americas with CCS Insights, confessed that the deal would face extreme opposition as “Independence is critical to the ongoing success of Arm and once that is compromised, its value will start to erode.”

We must note, though, that Nvidia and Arm do not directly compete which could be helpful in settling up conflicts in a market where mergers are seen with a bad eye, as their consequence can be market changing.

Although Nvidia has promised to keep their workers in the UK and to hire even more staff, Sonja Laud, chief investment officer at Legal & General Investment Management, says that these promises are not to be taken as granted, as he note that “with the expiry about to happen and obviously the Brexit negotiations under way it will be very interesting to see how this develops in the future." Will they or will they not keep the jobs local? This remains to be seen, but the Labour Party has urged the government to intervene.

 

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Sources:

https://www.theguardian.com/business/2020/sep/14/uk-tech-giant-arm-holdings-to-be-sold-to-us-company-nvidia-in-40bn-deal

https://www.theverge.com/2020/9/13/21435507/nvidia-acquiring-arm-40-billion-chips-ai-deal

https://www.bbc.com/news/technology-54142567

 

 

Read our next article: Apple product launch (Sept 15) and what it means for Apple stock

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