Nvidia deal threatens Arm’s supreme chip status

Record buy: A Nvidia project manager walks among the new building’s 246 triangular skylights in California. Nvidia wants to use its huge US$40bil acquisition Arm Ltd’s reach to expand its graphics chip business. — Bloomberg

NEW YORK: Nvidia Corp’s record deal to buy Arm Ltd will encounter major hurdles from regulators in countries sparring over trade and customers concerned the transaction will limit competition and unfairly favour Arm’s future owner.

After announcing the US$40bil agreement on Sunday, Nvidia CEO Jensen Huang and his counterpart at Arm, Simon Segars, defended the combination in briefings spanning several times zones. They both acknowledged their work is just beginning.

“Huang is probably in for the battle of his life, ” said Sanford C Bernstein analyst Stacy Rasgon. “They will need approvals from virtually everywhere given Arm’s ubiquity. And we would imagine the bulk of Arm’s current licensees will be (no pun intended) up in arms.”

Arm’s chip designs and instruction set, the code used by chips to communicate with software, are a key part of smartphones, autonomous vehicles and billions of sensors. They are also becoming more important for data centre servers and laptops.

What made the Cambridge, UK-based company so successful was its neutrality. As the Switzerland of the semiconductor industry, Arm licenses its technology to hundreds of companies, while competing with none of them. The Nvidia acquisition threatens this.

All major chipmakers are Arm customers and many of these companies, including Qualcomm Inc, Intel Corp and Advanced Micro Devices Inc, sell chips that compete directly with products from Nvidia. The deal raises concerns that Arm will give its new parent early access to its designs or make them work better with Nvidia products.

Apple Inc also relies on Arm to help it create the A series processors that power iPhones and iPads. Mac computers are about to embrace this technology, too. Apple usually tries to diversify its suppliers, but has avoided working with Nvidia. The Cupertino-based company hasn’t used Nvidia graphics chips in its computers for years, only offering GPUs from AMD.

Huang said common sense dictates he’ll be a good steward of Arm’s technology. The UK company’s financial fortunes depend on its ability to license chip fundamentals and sell designs to everyone, so Nvidia has zero incentive to risk customers walking away by disadvantaging them.

“Nothing would give us more joy than to have more customers, ” he said in an interview. “We want to enrich this ecosystem.”

Huang wants to use Arm’s reach to expand Nvidia’s graphics chip business. Nvidia failed to get into smartphones in a major way, but owning Arm will provide access to Apple and other handset giants such as Samsung Electronics Co and Huawei Technologies Inc that license Arm technology.

Arm may also help Nvidia get its chips into more data centres. The largest cloud-computing providers, Google, Amazon.com Inc, Microsoft Corp and a few of their Chinese counterparts, use some Arm-based chips to run widely used online services.

They also use Nvidia to accelerate artificial intelligence processing. The vast majority of servers are still powered by Intel silicon, though. The deal will need sign-offs from China, the UK, the European Union and the US. — Bloomberg

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