Almost a year and a half after NVIDIA announced its intent to acquire Arm, the GPU-maker said it would not go ahead with its plans. NVIDIA lost its chance to dominate the semiconductor space. The Softbank Group lost tens of billions of unrealized financial gains, and Arm’s CEO lost his job as the company looks forward to its IPO in the next fiscal year.
The largest semiconductor deal has been called off. American chipmaker NVIDIA on Tuesday announced the termination of its $40 billion bid to acquire Arm. The company attributed it to “significant regulatory challenges†surrounding the deal ever since it was first announced, “despite good faith efforts by the parties.â€
The acquisition was expected to close by March 2022, but as things turn out, it won’t now. Softbank Group, the Japanese technology, energy, and financial investment holding company and the current owner of the coveted British semiconductor design company Arm, will retain the $1.25 billion breakup fee paid by NVIDIA per the terms.
Softbank Group will now seek to transfer the ownership of Arm, which it acquired in 2016 for $31.4 billion, to the public through an initial public offering (IPO) no later than March 2023.
Based on the current NVIDIA stock price, Softbank Group would have made more than $61 billion if the acquisition was approved. This is ~$21 billion over the original $40 billion because part of the payment was agreed to be made through NVIDIA stock, which surged 171% between September 2020 and November 2021. At $251.08, the NVIDIA stock currently sits 106.37% higher than September 2020 levels.
Why Was the NVIDIA-Arm Deal Scrapped?
Soon after its announcement, the NVIDIA-Arm deal raised concerns within the semiconductor industry and regulatory watchdogs. The competitors saw the NVIDIA-Arm deal as a power play by the GPU maker and cash-grab by Arm. But NVIDIA expected it to withstand the turbulence even if it took longer than planned.
U.K.’s Competition and Markets Authority (CMA), the European Commission, the European Union’s competition and antitrust regulator, and authorities from China were apprehensive about the mega-deal and had ordered separate investigations. The Federal Trade Commission even sued to derail the transaction.
NVIDIA’s competitors in the semiconductor industry were concerned that the ownership of Arm’s indispensable and widely used chip architecture and intellectual properties would be detrimental to their business. The European Commission, the FTC, and other regulators feared the deal would reduce competition and stifle innovation.
Arm, an acronym for Advanced RISC Machines, is best known for designing Reduced Instruction Set Computer (RISC), an architecture used in chips powering millions of devices. Arm currently licenses this proprietary technology and IP, the bedrock of several processors made by Qualcomm, Intel, Apple, Samsung, Huawei, Amazon, and AMD. A lot of these are NVIDIA’s direct rivals.
Arm’s energy-efficient designs are integrated in tens of billions of chips manufactured every year. Consumer electronic devices that use Arm-based chips include computers, smartphones, tablets, cars, multimedia players, smart TVs, Wi-Fi routers, printers, control systems, cameras, IoT devices, and new-age servers and data centers. Apple, which until now leveraged Intel’s x86-based processor architecture, has planned a change to RISC for its MacBooks and iMacs.Â
What Lies Ahead for NVIDIA and Arm?
“Arm is at the center of the important dynamics in computing. Though we won’t be one company, we will partner closely with Arm,†Jensen Huang, founder and NVIDIA CEO. “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.â€
“Arm has a bright future, and we’ll continue to support them as a proud licensee for decades to come,†Huang added. Considering semiconductors are a fundamental element in the cloud, AI, IoT, AR/VR, and metaverse, their demand is expected to keep growing.
An open-source alternative to Arm’s RISC tech, the RISC-V was developed in 2010 and in recent years has garnered particular attention from several chipmakers. This is primarily due to the consternation arising from the NVIDIA-Arm deal.
NVIDIA may have had grand plans for Arm and its future, but as things stand, the British company will need to carve out a plan of action for its future technology ventures. Failing to do so would jeopardize the IPO valuation of Arm, which would be hoping to at least match what NVIDIA planned to spend, i.e., $40 billion. Arm is in the process of mainstreaming ARMv9.
On the other hand, with the kind of cash NVIDIA has, they could still make world-class designs based on Arm’s RISC or even explore RISC-V. A revival of Project Denver, initially announced in 2011Opens a new window , is unlikely given NVIDIA’s focus lies primarily in GPUs. More importantly, a newly designed CPU needs to be compliant and needs pervasive software support enjoyed by Arm-based CPUs.
An Unexpected Casualty
Immediately after NVIDIA scrapped the deal, Arm announced a leadership shuffle. The company is replacing Simon SegarsOpens a new window with Rene HaasOpens a new window as its CEO. Segars was with Arm for over 20 years and its chief executive for the last nine years.
It is unclear if Segars’ exit has anything to do with the fallout of the NVIDIA-Arm deal. Before becoming Arm’s CEO, Haas was the president of the IP Products Group.
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