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Nvidia's Share Price Dips as UK Goverment Questions $40 Billion Arm Acquisition

Stock image of the Union Flag and Arm brand
(Image credit: Ascannio / Shutterstock.com)

Nvidia's share price fell as much as 3.1% in pre-market trading as investors wondered if UK regulators will allow its $40 billion acquisition of Arm to go through.

The UK Secretary of State for Digital, Culture, Media and Sport today announced that he is asking the Competition and Markets Authority (CMA) to investigate the Nvidia-Arm merger because he believes the deal could have national security implications.

CMA has until July 31 to "prepare a report on the competition and national security aspects of the proposed transaction" for the UK Secretary of State. Then it's up to the Secretary to decide if Nvidia's acquisition of Arm will be allowed to proceed.

Nvidia announced its plan to acquire Arm from SoftBank in September 2020. (SoftBank will keep the company's IoT division.) The proposal offered SoftBank a mix of cash and stock worth $40 billion at the time.

The acquisition stands out for two reasons. The first is that it's the second-largest semiconductor industry acquisition to date. The second is that Arm's list of licensees includes the likes of Apple, Qualcomm, Samsung, and other leading tech companies.

Nvidia said when it announced the deal that it would uphold Arm's licensing model, which was predicated upon customer neutrality. But regulators were all but guaranteed to scrutinize a deal involving tech used in well over 180 billion chips. Companies such as Qualcomm, Microsoft, and Google have all complained about the acquisition to regulators. And those are just the companies whose complaints have been reported—the true list is probably longer.

Nvidia CEO Jensen Huang has stayed optimistic about the deal's chances, however, saying as recently as GTC 2021 that he believes the acquisition will move forward. 

The company also revealed its Arm-based Grace CPU, as well as a followup called Grace Next set to debut in 2025, at GTC 2021. The development of those products isn't contingent upon this deal moving forward, but it certainly wouldn't hurt.

Either way it's clear that Nvidia's acquisition of Arm won't be finalized any time soon, and in the meantime, the dipping share price makes it seem like investors are worried the company is more likely to pay the $1.25 billion breakup clause.

  • waltc3
    I don't see how this purchase benefits nVidia, actually. I mean, nVidia already is in a position to design its own ARM CPUs and have them manufactured by ARM--without having to pay ~$40B for the privilege. Sure, it would put nVidia in a corner-the-market position for ARM CPUs, but regulators won't let nVidia get that far even if the purchase is ultimately approved. Looks like nVidia is trying to buy its way into an AMD-like equivalency as opposed to building it from the ground up as AMD did. Typical JHH strategy, imo.
    Reply
  • spongiemaster
    waltc3 said:
    Looks like nVidia is trying to buy its way into an AMD-like equivalency as opposed to building it from the ground up as AMD did. Typical JHH strategy, imo.
    You mean like how AMD bought ATi to be their graphics division? Isn't AMD also in the process of buying Xilinx for $35 billion?
    Reply
  • thGe17
    @waltc3: You have to purchase a license from ARM to use their architecture and designs and an even bigger license to make design changes and so on. That's how ARM makes its money. And it is most likely that you pay additionally depending on the sold product volume.
    nVidia's plan is quiet reasonable: They have massive (GP)GPU and AI knowledge, have networking and now they try so get CPU (system) knowledge, so in the end they would be able to deliver complete systems and infrastructure on their own and they can easily custom-tailor these systems to their specific needs.

    @spongiemaster: Yes, AMD will most likely finish the Xilinx deal by the end of 2021.

    And in the end, both companies need the broader basis and portfolio to compete against Intel and other competitors in the long term.
    Reply
  • hotaru251
    waltc3 said:
    I don't see how this purchase benefits nVidia, actually. I mean, nVidia already is in a position to design its own ARM CPUs and have them manufactured by ARM--without having to pay ~$40B for the privilege. Sure, it would put nVidia in a corner-the-market position for ARM CPUs, but regulators won't let nVidia get that far even if the purchase is ultimately approved. Looks like nVidia is trying to buy its way into an AMD-like equivalency as opposed to building it from the ground up as AMD did. Typical JHH strategy, imo.
    same reason other cpu/gpu buy stuff even though they can do it themselves...the talent (ppl) and the patents along side boosting your companies value
    Reply
  • watzupken
    Jensen should have seen this coming. In the first place, there is an obvious conflict of interest where ARM is an independent and their technology is widely used by a lot of big chip designing/ making companies. The fact that Nvidia already is a licensed user of ARM technology just made the reason/ motive as to why they are buying the entire firm even more questionable. Jensen will be delusional to think that any of their competitors will happily agree to the merger.

    To add on to the hurdle, with US sanctioning China from US technology, it is highly unlikely China and their allies will agree to the merger.
    Reply
  • morgan.kenneth
    So it's ok to be owned by the Japanese, but not a US company? So dumb.

    Of course Nvidia wants the ARM brand. It generates $30 Billion in sales a year and allows them to compete with AMD and Intel. Such a waste of time bitching about this merger.
    Reply