Citi Gives Nvidia's Arm Purchase a 10% Chance of Approval

As the U.K. government on Monday announced plans to intervene in Nvidia's takeover of Arm on national security grounds, analysts from Citigroup reconsidered Nvidia's chance to acquire the CPU and GPU developer. The observers believe that now that Nvidia introduced its own Arm-powered datacenter CPU, the likelihood of it getting approval to buy Arm just got significantly lower. 

Oliver Dowden, the U.K.'s Digital Secretary on Monday issued a Public Interest Intervention Notice (PIIN) concerning the takeover and expressed his concerns about the proposed acquisition and national security. The antitrust investigation in the U.K. is expected to be concluded by the end of July. 

"Following careful consideration of the proposed takeover of Arm, I have today issued an intervention notice on national security grounds," said Dowden, as reported by CNBC. "As a next step and to help me gather the relevant information, the U.K.'s independent competition authority will now prepare a report on the implications of the transaction, which will help inform any further decisions. We want to support our thriving UK tech industry and welcome foreign investment, but it is appropriate that we properly consider the national security implications of a transaction like this." 

Arm, which historically was a publicly traded company, is now owned by Japanese SoftBank, yet it remains a purely U.K.-based company that develops its technologies in the country. Arm licenses its CPU and GPU technologies to all interested parties, but many believe that as soon as Nvidia gains control over the company, it will try to change licensing terms, which will impact independent chip designers that compete against Nvidia on SoC and GPU markets. Jensen Huang, CEO of Nvidia, has vowed to keep Arm's headquarters in Britain, even expand its footprint there, and keep Arm's technologies available to everyone. The head of Nvidia expects the deal to close in 2022. 

The transaction between Nvidia and SoftBank, which is valued at nearly $40 billion, has not yet received approval by various antitrust agencies in the U.S., U.K, E.U, China, Japan, and South Korea. Meanwhile, it is widely believed that no regulators or Arm clients want Nvidia to take over an independent designer of CPUs and GPUs, as it will dramatically increase Nvidia's influence on hundreds of companies and even on international projects, such as development of exascale supercomputers in Europe.  

Given all the possible opposition of Nvidia's takeover of Arm, analysts are skeptical that the deal will be approved by all regulators. For example, Citigroup believes that the chance the deal will be approved by all countries is about 10% after Nvidia's announcement last week of its own Arm-based Grace CPU that will compete against other datacenter products by Arm's licensees. Meanwhile, Bank of America believes that Nvidia is more solidly positioned without Arm, as selling own products is a more lucrative business than licensing technologies.