It seems the chips aren't falling in Nvidia's favor when it comes to its $40 billion Arm acquisition deal from Softbank. The deal shocked the tech world when it was announced way back in September 2020; however, Nvidia has since been hitting regulatory scrutiny front and center. UK regulators have expressed their concerns regarding the deal and so have Chinese authorities. Nvidia's attempt at swaying the European Commission (EC) has been met with unexplained delays that have seemingly moved an eventual decision further and further from Nvidia. So news that the EC has just announced a formal, 90-day probe into the acquisition means a further delay for Nvidia.
The probe cites concerns regarding the importance of Arm's IP and its current licensing structure towards a healthy and competitive environment - and how that might be impacted under Nvidia's umbrella. The fact that 25 billion devices carrying an Arm chip were shipped in 2020 goes to show just how pervasive the architecture and licensing model truly is in the technology world. The company has recently surpassed the 200 billion shipped devices mark (this is roughly equivalent to every single human possessing around 28 devices with an integrated Arm chip), aided by the fact that Arm chips can be found on anything, from toasters to the world's current fastest supercomputer, Japan's Fugaku.
Considering Arm's recent moves towards the supercomputing space and even their announced plans to push further through the GPU design space, it's understandable that antitrust regulators are dissecting this deal for all it's worth. As a relatively independent company under Softbank, Arm has licensing deals with both Nvidia and its competitors; concerns arise when Nvidia could use its Arm acquisition to block or degrade competitor's access to Arm's technologies. The idea is that that would be a monopolistic move that would greatly stifle innovation, competition, and ultimately, technological development and consumer satisfaction. A number of high-profile companies such as Qualcomm, Google and Microsoft have been very open about the result from such a deal being less than optimal for the market in general.
"Semiconductors are everywhere in products and devices that we use everyday as well as in infrastructure such as datacentres. Whilst Arm and NVIDIA do not directly compete, Arm's IP is an important input in products competing with those of NVIDIA, for example in datacentres, automotive and in Internet of Things," said EC's Executive Vice-President Margrethe Vestager. "Our analysis shows that the acquisition of Arm by NVIDIA could lead to restricted or degraded access to Arm's IP, with distortive effects in many markets where semiconductors are used. Our investigation aims to ensure that companies active in Europe continue having effective access to the technology that is necessary to produce state-of-the-art semiconductor products at competitive prices."
The Nvidia-Arm problem is thus much more complex than a simple deal in the usual merger & acquisitions sense; this essentially removes Arm from its position as a technology supplier, and brings the company, its designs and resources into a prospectively competitor-like position; one of the EC's concerns is that Arm's designs and R&D somehow stops catering to the needs of the market and of its clients, and becomes more of an Nvidia-focused effort, suffocating third party customers and strengthening Nvidia's core businesses.
If everything goes according to schedule, the Commission should publish a decision until March 15th 2022 at the latest. Should their decision lean towards blocking the acquisition, Nvidia's original estimate for the deal's completion in March 2022 will materialize in the polar opposite of what the company expected. Softbank and Arm are keeping their options open as we speak: an IPO option is being explored, and should the deal fail, that's the more likely road for the UK-based company.