Nvidia’s Attempt to Buy Arm: The Biggest Chip Deal That Never Happened

The deal, intended to create the "world's premier computing company for the age of AI," would have been the largest ever in the semiconductor industry.

Introduction

In 2020, Nvidia’s, the world’s leading maker of graphics chips, made a bold move to acquire Arm, the British chip design company, for $66 billion. The deal, intended to create the “world’s premier computing company for the age of AI,” would have been the largest ever in the semiconductor industry.

However, the deal never materialized, as it faced insurmountable opposition from regulators, customers, and rivals of both companies, who feared that it would harm competition, innovation, and national security in the global chip market. After more than a year of regulatory scrutiny and legal challenges, Nvidia and Arm finally gave up on the deal in February 2022, citing “significant regulatory hurdles”.

Looking back two years after the deal’s announcement, we analyze Nvidia’s motivations for pursuing Arm, the factors that thwarted the deal, and the repercussions of its failure on the chip industry and the involved companies.

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Why Nvidia Wanted to Buy Arm

Nvidia’s main motivation to buy Arm was to expand its reach and influence in the chip industry, and to gain access to Arm’s technology and ecosystem. Nvidia, which dominates the market for graphics chips used in gaming, data center, and AI applications, saw Arm as a way to diversify its offerings and enter new markets, such as smartphones, tablets, IoT devices, cloud computing, automotive, and edge computing.

Arm’s technology is used in almost all of these devices, as Arm licenses its chip designs to hundreds of companies, including Apple, Qualcomm, Samsung, Huawei, and Microsoft, who customize them for their own products. By owning Arm, Nvidia hoped to benefit from the huge and growing demand for Arm-based chips, and to leverage Arm’s expertise in low-power and high-performance chip design.

Nvidia also saw Arm as a strategic asset in the race to develop and deploy AI solutions across various domains and platforms. Nvidia’s CEO, Jensen Huang, said that the deal would enable the company to “create the computing company for the age of AI”, and that Arm’s technology would complement Nvidia’s graphics and AI chips, creating a “powerful combination”. Nvidia envisioned that by combining its AI software and hardware with Arm’s chip designs, it could create new products and platforms for AI applications, such as self-driving cars, smart cities, healthcare, and robotics.

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Why the Deal Failed

However, Nvidia’s bid for Arm faced strong resistance from multiple fronts, as many stakeholders in the chip industry and beyond expressed their concerns and objections to the deal. The deal’s failure was mainly due to three factors: regulatory hurdles, competitive issues, and geopolitical tensions.

Regulatory hurdles:

The deal required approval from regulators in several countries, including the US, UK, EU, China, and Japan, where Nvidia and Arm operate or have customers. However, the regulators were reluctant to approve the deal, as they had doubts about its impact on competition, innovation, and consumer welfare in the chip market. The regulators launched in-depth investigations into the deal, and raised various questions, such as whether Nvidia would maintain Arm’s neutral licensing model, and whether Nvidia would favor its own products over Arm’s customers.

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Competitive issues:

The deal also faced fierce opposition from many of Nvidia and Arm’s customers and competitors, who feared that the deal would give Nvidia an unfair advantage and harm their interests and positions in the chip market. Many of Arm’s customers, such as Qualcomm, Samsung, Huawei, and Microsoft, were also Nvidia’s competitors in various segments of the chip industry. They got worried that Nvidia would have access to their confidential information and intellectual property, and that Nvidia would restrict their access to Arm’s technology or raise its licensing fees. They also argued that the deal would reduce their incentives and ability to innovate and compete in the market, and that it would create a monopoly or a dominant player in the chip industry.

Geopolitical tensions:

The deal also had geopolitical implications, as it involved the transfer of a strategic asset from Japan (where Arm’s current owner, SoftBank, is based) to the US, especially amid the ongoing trade and technology war between the US and China. Arm’s technology is widely used in China, which accounts for about a quarter of Arm’s revenue and more than half of its chip shipments. However, the US has imposed various sanctions and restrictions on Chinese companies, such as Huawei and SMIC, that use or produce Arm-based chips, citing national security and human rights concerns. The deal raised the possibility that the US could exert more control and influence over Arm’s technology and business, and that it could cut off or limit China’s access to Arm’s technology.

What Impact the Deal’s Failure Had

The deal’s failure reshaped the market dynamics and competitive landscape. The deal’s failure had different implications for Arm, Nvidia, and their customers and competitors, as they adjusted to the changing environment.

  • For Arm: The deal’s failure meant that Arm remained under SoftBank’s ownership, and that it had to pursue its own vision and strategy, without being influenced or constrained by Nvidia’s interests or agendas. Arm faced the possibility of going public again, either through a traditional IPO or a merger with a SPAC, as SoftBank was looking for ways to monetize its stake in Arm, and as Arm could benefit from raising fresh capital and boosting its brand recognition and credibility.
  • For Nvidia: The deal’s failure meant that Nvidia missed a major opportunity to expand its reach and influence in the chip industry, and to access Arm’s technology and ecosystem. Nvidia also had to deal with the increased competition and pressure from its rivals, such as Intel, AMD, and Qualcomm, who were also investing heavily in graphics and AI chips, and who had an edge over Nvidia in some segments of the chip market, such as smartphones, tablets, and IoT devices.
  • For the chip industry: On the one hand, the deal’s failure could lead to more consolidation in the chip industry, as companies sought to gain scale, diversify their offerings, and cope with the rising costs and complexities of chip development and manufacturing. Some of the notable deals that followed the deal’s failure included AMD’s acquisition of Xilinx, Marvell’s acquisition of Inphi, and Analog Devices’ acquisition of Maxim Integrated. On the other hand, the deal’s failure could also lead to more fragmentation in the chip industry, as some companies opted to design their own chips, rather than relying on Arm’s technology, to gain more control and customization over their products.

Conclusion

Nvidia’s attempt to buy Arm was a historic and ambitious deal that could have reshaped the chip industry and the future of computing. However, the deal failed to materialize, as it faced too many obstacles and challenges from regulators, customers, competitors, and governments. The deal’s failure had a profound and lasting impact on the chip industry and the companies involved. The deal’s failure was a turning point for the chip industry, and it could have a lasting and far-reaching consequences for the industry and the society.

Editorial Team
Editorial Team
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