How Will the $40B NVIDIA and Arm Deal Transform the AI Industry?

Marking the semiconductor industry’s biggest deal, NVIDIA acquires British chipmaker giant Arm from Japanese tech company SoftBank Group for $40 billion. What does this deal mean for the semiconductor industry?

It was a big week for the semiconductor and computing industry. After months of speculation, on September 13, 2020, GPU maker NVIDIA signed an agreementOpens a new window to acquire Arm Holdings from SBG and the SoftBank Vision Fund (together, SoftBank) for $40 billion in a mix of cash and stock. The company plans to combine its AI computing platform with Arm’s vast computing ecosystem and innovate the AI market. Together the companies plan to build AI research and education centers at Arm’s Cambridge, England campus for healthcare, life sciences, robotics, self-driving cars, and other fields.

Jensen Huang, CEO of NVIDIA, saysOpens a new window , “We will create an open center of excellence in the area once home to giants like Isaac Newton and Alan Turing, for whom key NVIDIA technologies are named. We are ambitious. We can’t wait to build on the foundations created by the talented minds of NVIDIA and Arm to make Cambridge the next great AI center for the world.”

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Arm and its Operating Structure

Arm designs the architecture for mobile chips and licenses its intellectual property to Samsung, Apple, Google, Amazon, Qualcomm, and Huawei. Also, the company’s energy-efficient chips power 90% of the smartphone market and has a strong foothold in the IoT sector.

In 2016, SoftBank bought Arm for $32 billion to advance its IoT plans. But since July 2020, SoftBank has been seeking a potential buyer for its chip company Arm. The tech giant underwent significant financial losses due to high profile investments in now-troubled companies, including WeWork and Uber. Upon completing the deal, SoftBank will receive $12 billion in cash, along with $21.5 billion in NVIDIA stock and $5 billion earn-out payment if Arm meets financial targets. SoftBank will continue to have a 10% ownership stake in Arm.

Once the deal closes, Arm will operate as a division of NVIDIA and will be headquartered in Cambridge, U.K. Also, the company will continue to operate its open-licensing model while maintaining its global customer neutrality.

NVIDIA’s Strong Grip in the Computing Market

Over the years, the GPU maker has transitioned its dominance in the graphics chips market to data center AI processing and autonomous vehicles. To boost its AI and high-performance computing initiatives, in April 2020, NVIDIA acquiredOpens a new window Mellanox Technologies for $6.9 billion. Now with Arm, NVIDIA can bolster its edge AI ambitions and leverage Arm’s CPU technology into its data center to reduce energy consumption. This deal can also strengthen its position in connected devices such as smartphones, PCs, robotics, and 5G.

Huang, further addedOpens a new window , “We are joining arms with Arm to create the leading computing company for the age of AI. AI is the most powerful technology force of our time. Learning from data, AI supercomputers can write software no human can. Amazingly, AI software can perceive its environment, infer the best plan, and act intelligently. This new form of software will expand computing to every corner of the globe. Someday, trillions of computers running AI will create a new internet — the internet-of-things — thousands of times bigger than today’s internet-of-people.”

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Regulatory and Competitors Concerns

What does this deal mean for Arm and its partners? Owing to the fact that a U.S. company will own Arm, it might be a cause of worry for Chinese companies that are currently facing a trade war with the U.S. 

Speaking to BBC Radio 4, Hermann Hauser, Arm’s co-founder saysOpens a new window , “If Arm becomes a US subsidiary of a US company, it falls under the Cfius [Committee on Foreign Investment in the United States] regulations and all the decisions made in it will be made in the White House and not in Downing Street.”

Moreover, the deal might undergo multiple regulatory scrutinies from the U.S., U.K., European Union, and China upon fair business practices. Lawmakers and numerous tech companies worry that NVIDIA might have an unfair advantage due to its control over Arm-designed chip blueprints, which is used by NVIDIA’s rivals, including Intel, Qualcomm, and AMD.

Geoff Blaber, VP Research, Americas at CCS Insights, saysOpens a new window , “Arm has a huge range of partners that rely on it for an increasingly wide array of uses. Its independence is critical to its ongoing success, a point that Arm itself has emphasized in the past. The moment that control shifts to a rival, this independence is compromised. Arm is facing growing competition from RISC-V, an open-source architecture. If its partners believed that Arm’s integrity and independence was compromised, it would accelerate the growth of RISC-V.”

Updated on August 5, 2021

It seems what could have been the biggest semiconductor deal ever won’t pass after all. The $40 billion acquisition of the Japanese-owned ARM by the United States-based NVIDIA could be blocked by the United Kingdom’s Competition and Markets Authority (CMA). The U.K. CMA, who is investigating the terms after other players such as Qualcomm, Google, Microsoft, and Huawei complained, believes the deal could affect the national security of the country, according to BloombergOpens a new window .

What are your thoughts on NVIDIA and Arm’s $40 billion deal? Comment below or let us know on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window . We’d love to hear from you!