U.S. FTC Adds Hurdles to Nvidia's Arm Takeover

Nvidia is seeking regulatory approvals of its Arm acquisition in multiple jurisdictions, but the company is facing hurdles basically everywhere. After the EU and the UK launched in-depth probes into the deal, Nvidia has now revealed that the US Federal Trade Commission has also expressed "concerns" about the takeover. Those concerns will require unspecified remediations. 

"Regulators at the US Federal Trade Commission (FTC) have expressed concerns regarding the transaction, and we are engaged in discussions with the FTC regarding remedies to address those concerns," a statement by Nvidia reads. 

The concerns of the US FTC are unknown, but it is more than likely that they are very similar to those expressed by anticompetitive regulators from Europe and the UK. Nvidia badly needs CPU assets to address data centers, high-performance computing (HPC), edge computing, and automotive segments. Still, once it gets Arm and develops its own solutions for the said segments, it will compete against licensees of Arm technologies. 

While Nvidia's management assures that its Grace CPU is designed solely to accompany its compute GPUs, it also says that it could address general data center workloads and therefore compete against AMD's EPYC, Amazon's Graviton, Ampere's Altra, and Intel's Xeon processors. 

"[Grace] is a niche product that is focused on AI workloads, focused on high-performance computing type of workloads, and may be very key in terms of supercomputing as well," said Colette Kress, Nvidia's chief financial officer, at a recent conference. "So, we are in the initial stages, and we think in the next couple of years, this will come to market to be our first overall data center CPU."

Regulators in the UK and the EU declined to support the deal after their initial reviews and launched more thorough investigations that will take months. The UK's Competition and Market Authority (CMA) is concerned about two things: whether the transaction would provide Nvidia extensive benefits that will lead to a substantial lessening of competition (SLC), as well as the impact on the UK's national security interests. The UK regulators believe that Nvidia's proposed undertakings are not enough to mitigate the national security concerns. 

"Arm has a unique place in the global technology supply chain, and we must make sure the implications of this transaction are fully considered," said Nadine Dorries, UK's Digital Secretary. "The CMA will now report to me on competition and national security grounds and provide advice on the next steps. The government's commitment to our thriving tech sector is unwavering, and we welcome foreign investment, but it is right that we fully consider the implications of this transaction."

China remains another major concern as the country's government will unlikely approve the deal under which an American company would gain IP widely used by Chinese domestic chip designers.

"We continue to believe the proposed deal will likely not get the required approval," said Matt Bryson, an analyst withWedbush Securities, in a report, reports Barrons. "The largest concern remains China. […] With an Arm Nvidia tie-up yielding real questions around market concentration risk, we are simply unclear as to why China would risk a US company gaining control over Arm's IP (regardless of the IP being domiciled in the UK)."

In general, regulators and many Arm licensees don't exactly like the idea of Nvidia's takeover. Meanwhile, some financial analysts do not believe that the deal would materialize at all.

"It is nearly certain that the acquisition will not materialize before the break fee deadline of September 2022 and is likely to cause Nvidia to either walk from the deal or restructure the deal," a report by EnerTuition reads (published by SeekingAlpha). 

Others, like Vivek Arya from Bank of America, call the transaction "unjustified and unnecessary."

"The takeover faces material regulatory hurdles [and] has no near-to medium-term benefits to Nvidia growth prospects, with any Arm-related engagements possible through just IP licensing," Arya wrote.