Updated: February 10, 2021 8:28:47 am
American chipmaker Nvidia’s $40 billion acquisition of Arm Ltd from SoftBank Group has come under a cloud, with both the British and European competition watchdogs opening “in-depth” investigations into the deal. This is in addition to the US Federal Trade Commission announcing last year that it will be seeking additional information about the deal to ensure it didn’t breach competition rules, and expectations of a “tough and protracted” scrutiny from China. The increasing examination into the acquisition is the function of a number of factors including what it means for rivals and rising oversight of jurisdictions over strategic sectors.
What is the Nvidia-Arm deal?
In September, Nvidia had announced that it will purchase Arm from SoftBank for $40 billion. This became the largest-ever deal in the semiconductor industry. At the time, the deal was looked at giving the US a leg up in its so-called trade wars with China, in a highly strategic sector like semiconductor design and manufacturing. Even though China is still looking to develop its presence in the semiconductor industry, the deal saw protests from other quarters like South Korea and Taiwan, where major players expected a negative impact on competition. According to Bloomberg, mergers and acquisitions in the semiconductor industry more than doubled last year to $144 billion, marking a consolidation drive of the sector.
Who is opposing the deal and why?
Rivals of the two companies fear potential locking out of smaller players if Nvidia decides to put brakes on Arm’s open-licensing business model, which is based on customer neutrality. As a supplier of chip designs and intellectual property to most players in the semiconductor industry, Arm has managed an unparalleled reach with large customers like Intel, Samsung, Apple, Qualcomm, etc — some of which are increasingly competing with Nvidia. One of the most recent opposers of the deal is British chipmaker Graphcore, which is backed by Microsoft and Samsung, among various other investors. One of the early developers of Arm in 1990s, Hermann Hauser, who is now an investor in Graphcore, told CNBC: “If Nvidia can merge the Arm and Nvidia designs in the same software then that locks out companies like Graphcore from entering the seller market and entering a close relationship with Arm”. Graphcore has made a “major submission” to the UK’s Competition and Markets Authority (CMA).
What are the antitrust regulators looking at?
In addition to the impact that Nvidia’s acquisition of Arm could have on its rivals, the regulators are also looking at the impact of a deal this size on the strategic interests of their respective jurisdictions. For the UK, which opened the probe into the deal last month, it has become the first major investigation by the competition watchdog after Brexit. The UK CMA has also noted earlier that it plans to put greater scrutiny on strategic deals in the technology sector, irrespective of the size of a deal. The two companies have also said that they expect the deal to undergo “tough and protracted” scrutiny from China.
How has Nvidia responded to the concerns?
At the time of announcing the deal, Nvidia had noted in a statement that Arm will continue to operate its open-licensing model, while maintaining the global customer neutrality that has been foundational to its success, with 180 billion chips shipped to-date by its licensees. The companies, anticipating regulatory scrutiny, had set an 18-month timeframe for the deal to complete.
How is the global semiconductor industry shaped?
According to Gartner, the worldwide semiconductor revenues in 2020 stood at $449.8 billion, an increase of 7.3% from 2019. Intel retained its position as the top global semiconductor vendor by revenue in 2020, followed by South Korean firms Samsung Electronics and SK hynix at number 2 and number 3. Others in the top 10 semiconductor vendors by revenue are Idaho-based Micron Technology, California-based chipmakers Qualcomm and Broadcom, Texas Instruments, Taiwanese company MediaTek, Tokyo-based Kixoia and Nvidia. Of the $449.8 billion in 2020 revenues, these 10 companies accounted for $251.8 billion. The industry has also seen a spur of consolidation, the latest of which is Japan’s Renesas Electronics Corp agreeing to buy British chipmaker Dialog Semiconductor for nearly $6 billion. Both these companies are suppliers to Apple.
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