FTC Tosses Monkey Wrench Into Nvidia-Arm Deal

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The Federal Trade Commission said it intends to sue to block Nvidia’s acquisition of Arm on competitive grounds. The FTC said the deal would give Nvidia too much control over technology and designs “that rival firms rely on to develop their own competing chips.” The Commission said it believes the combination would have both the means and the incentive to stifle market innovation.

Nvidia’s proposed purchase of Arm raised concerns from the moment rumors began swirling that the deal was pending in the Summer of 2020. Opposition has simmered all along, but it appears to be coalescing recently. Two weeks ago, the United Kingdom widened an investigation into the deal due to concerns about both competition and national security (Arm was founded in the UK). It was also two weeks ago that the FTC began voicing concerns about the deal.

Nvidia signaled it intends to continue fighting through the opposition and will persist with its efforts to buy Arm. The company offered the following statement in response to the FTC:

As we move into this next step in the FTC process, we will continue to work to demonstrate that this transaction will benefit the industry and promote competition.

NVIDIA will invest in Arm’s R&D, accelerate its roadmaps, and expand its offerings in ways that boost competition, create more opportunities for all Arm licensees and expand the Arm ecosystem. NVIDIA is committed to preserving Arm’s open licensing model and ensuring that its IP is available to all interested licensees, current and future.

Nvidia declined further comment.

Meanwhile, the deal is still awaiting the approval (or denial) of China. China, recall, let die the merger between NXP and Qualcomm simply by declining to participate in the approval process. China’s decision about Nvidia’s acquisition of Arm is further complicated by international trade conflicts, international political tensions, and the bizarre saga at Arm’s joint venture in China. Recall that Arm tried to remove the JV’s CEO Allen Wu, but Wu took physical control of the operation and is still resisting any direction from Arm (the minority stakeholder in the venture).

Arm NvidiaJim McGregor, principal analyst at Tirias Research, said he was surprised at the FTC’s timing, in that that the agency is still in the process of reviewing of the pending deal between Nvidia and Arm. Procedurally, the FTC might not even be able to press a suit until its review is complete.

As for Nvidia doubling down on completing the deal, McGregor said, “It is not in Jensen’s mindset to back down. He’s very determined; it’s why Nvidia is where it is.” The reference is to Nvidia CEO Jensen Huang.

Nvidia announced its intention to buy Arm from Softbank in September of 2020. At the time, the offer was worth $40 billion. By one estimation, with changes in stock values since then, the deal could now be worth as much as $54 billion. Either way, it would be among the bigger acquisitions in business history.

News of the deal immediately struck fear among some Arm licensees that Nvidia would exert too much control over Arm operations. Nvidia might de-emphasize or even shut down some technological avenues important to Nvidia competitors, which would stifle innovation, as the FTC alleges. Another fear is that competitive information could find its way through Arm to Nvidia.

Companies leery of the merger have communicated those general fears to regulatory agencies. The FTC honed them into some specific fears, which it enumerated in its complaint. Nvidia’s acquisition of Arm will harm competition in three worldwide markets in which Nvidia competes using Arm-based products. Quoting the FTC complaint, they are:

    • High-Level Advanced Driver Assistance Systems for passenger cars. These systems offer computer-assisted driving functions, such as automated lane changing, lane keeping, highway entrance and exit, and collision prevention;
    • DPU SmartNICs, which are advanced networking products used to increase the security and efficiency of datacenter servers; and
    • Arm-Based CPUs for Cloud Computing Service Providers. These new and emerging products leverage Arm’s technology to meet the performance, power efficiency, and customizability needs of modern datacenters that provide cloud computing services.

Despite these worries, some Arm licensees — some Nvidia competitors among them — are supporting the merger.

The consequences of failure

If the deal falls through, however, Arm’s options seem to be limited, and there might even be some peril for Arm licensees, including Nvidia rivals.

Arm could presumably find another buyer, but McGregor is skeptical. When Softbank began shopping Arm, nobody other than Nvidia made an offer, and since then, “nobody’s come up with a competitive bid to make sure Arm stays more neutral,” McGregor noted.

The next best option would probably be an IPO, a possibility that Softbank and Arm had been exploring before Nvidia volunteered to buy the company.

Arm CEO Simon Segars (l.) and Nvidia CEO Jensen Huang (r.).

McGregor reminded that even as successful as Arm has been with its approach of developing technology and then licensing the IP to all comers, Arm has been able to grow to only a relatively modest size vis a vis processor rivals such as Intel. As a practical matter, that makes it hard for Arm to keep up with R&D investments. Without the resources of a larger company (such as Nvidia) that could plough money into R&D, a risk for a go-it-alone Arm would be falling behind technologically.

Being left on its own would once again make Arm “just another IP company; it’ll leave them hanging in limbo,” McGregor said. “Nvidia is trying to assure everyone they’ll invest and keep the Arm business structure intact.” (To that end, note the assurance Nvidia made in the second sentence of its statement up above.)

Can rivals trust Nvidia? Maybe. Maybe not. McGregor notes that Nvidia is a highly competitive company in a highly competitive business. On the other hand, he said, “it would be foolish for Nvidia to screw with Arm’s business model.”

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