Up in Arms: Nvidia chip acquisition faces scrutiny

May 13, 2021

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3 min read

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What's going on here?

After agreeing to a $40bn offer for the Cambridge-based chip maker Arm Holdings plc (Arm), Nvidia faces scrutiny on both competition and national security grounds.

What does this mean?

Britain’s Digital Secretary, Oliver Dowden, has issued a Public Interest Intervention Notice (PIIN) granted under the Enterprise Act 2002 that gives ‘quasi-judicial’ powers to intervene in public mergers on public interest and national security grounds. Dowden wrote to the Competition and Markets Authority requesting a phase 1 investigation into the proposed acquisition to be completed before 30 July 2021. Phase 1 would address whether there might be any “incentive to withdraw, raise prices or reduce the quality of its intellectual property licensing services to Nvidia’s rivals.” Alongside the regulator, the government will publish its own report covering national security concerns.

Arm is informally recognised as the “Switzerland of Chips” due to its neutral business model as a supplier of chips. Arm does not manufacture any chips itself, rather choosing to license out its IP to around 500 other companies. This has been extremely successful as Arm dominates the phone market, providing 95% of all chip technology used in phones and outpacing its closest competitors Intel and AMD. Nvidia is a California-headquartered graphics chip specialist, having recently leapfrogged Intel as the world’s largest semiconductor group, which hopes to use better access to Arm’s chips to push the frontiers of AI technology. Nvidia will pay the current owner, SoftBank, $21.5bn in shares and $12bn in cash.

What's the big picture effect?

Arm’s presence in the limelight can be traced back to post-Brexit 2016 after receiving a bid, and ultimately being acquired by Japanese SoftBank. The current Nvidia proposal has received a far greater backlash than SoftBank’s initial acquisition. Semiconductors are used for critical infrastructure in Britain and can be found in defence and national security-related systems which partly explains the Secretary’s decision. Moreover, it is argued that the inevitable relocation of Arm’s HQ will lead to a loss of jobs in the UK as 3000 staff are employed by Arm in Britain, potentially leaving a huge gap in Britain’s tech sector.

Corporate opponents are resisting the acquisition on competition grounds. As a supplier of chips to behemoths such as Apple, Samsung and Qualcomm, the backlash is not unexpected. 

Arm’s cofounder has been a particularly vocal critic, warning that Nvidia is highly incentivised to destroy Arm’s business model because it could use the acquisition to restrict licensing Arm’s IP and raise prices, leaving competitors that rely on the technology scrambling for new chip designs. This would ruin Arm’s reputation as a neutral player in the field. Chinese companies are particularly concerned with the acquisition as a fifth of Arm’s sales occur in China. The fear is that in the event of a successful acquisition, the Biden administration could use executive powers to block Nvidia from selling its IP to Chinese companies for political purposes. 

Nvidia has objected to some of these claims. Nvidia’s Chief Executive Jensen Huang declared that Nvidia would not relocate the Cambridge HQ. Additionally, there will be increased investment drawing talent from across the globe to the UK and significantly bolstering the country’s tech sector. Crucially, Huang promised that Nvidia would not force Arm to hike prices or restrict IP exports.

It is difficult to predict the outcome of the acquisition without exact details of what specific national security concerns the Digital Secretary refers to or the exact legal details of the acquisition. Yet, one cannot help but see the outcry as a reflection of the times in which we live – a global chip supply crisis caused by a border-crossing pandemic and growing Cold-War-like tensions between America and China.

Report written by Andri Boda

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