Advanced Computing in the Age of AI | Friday, December 3, 2021

UK Government Delving Deeper into Nvidia-Arm Acquisition Proposal: Report 

The British government will reportedly soon order an in-depth antitrust investigation into the proposed $40 billion Nvidia acquisition of Arm, following a similar investigation that was undertaken just three weeks ago by the European Commission.

The coming action was reported Nov. 14 (Sunday) by The (London) Times, which stated that British officials are “poised to pull the trigger on a full-blown investigation into the sale of Arm, Britain’s biggest technology company, in a move that threatens to [thwart] the controversial $40 billion deal.”

The move is expected to be made this week by Nadine Dorries, a member of the British Parliament who serves as Secretary of State for Digital, Culture, Media and Sport, the report continued. Dorries “will order a Phase Two probe” into Nvidia’s proposed plans to acquire U.K.-based semiconductor IP vendor Arm from its parent company, SoftBank, of Japan.

Nadine Dorries, UK Parliament

Dorries “will instruct the (U.K. antitrust) competition watchdog to carry out an in-depth inquiry into antitrust concerns, as well as scrutinize national security fears raised by the takeover,” the report continued.

Jack Everett, a spokesman for Dorries’ office, declined to comment on the report by The Times.

In April, Dorries’ predecessor in the secretary of state’s post, Oliver Dowden, ordered a Phase One inquiry into the proposed acquisition of Arm by Nvidia. A 10-page executive summary of the report, which was issued by the U.K.’s Competition and Markets Authority (CMA), was delivered to Dowden in August, criticizing the proposed acquisition, saying it could “lead to a realistic prospect of a substantial lessening of competition” in the globally-important chip industry. Dowden’s order specified that the CMA evaluate the deal on competition grounds and report back to the government.

“The CMA found significant competition concerns as a result of the effect of [the proposed acquisition] in the supply of CPUs, interconnect products, GPUs and SoCs across several global markets, spanning the data center, internet of things, automotive and gaming console applications,” the August report stated.

Dorries now has that Phase One report from her predecessor and will use it to decide her next step in the matter. Dorries does not have a set period in which she must make her decision, but under U.K. law, it must be made “as soon as reasonably practicable to reduce uncertainty,” according to the agency.

Jack E. Gold, president and principal analyst at J. Gold Associates, LLC, told EnterpriseAI that the case is a matter of national honor because Arm put the U.K. on the map as a major semiconductor technology player.

“So, any threat to the U.K. dominance of the Arm world, by allowing a takeover, will get increased scrutiny,” said Gold. “Yes, SoftBank held Arm for a time, but that was more of a financial transaction, and it was understood when they made the acquisition that they were not going to change the fundamental character of Arm as the takeover by Nvidia is likely to do.”

Jack Gold, analyst

In addition, said Gold, “it is also likely that over time, Nvidia would move a substantial portion, if not all of Arm outside the U.K. and consolidate in its own headquarters. I expect that the U.K. will likely find some real competitive threats with the acquisition, and it will be difficult for Nvidia to adequately respond.”

Another analyst, Karl Freund, founder and principal analyst at Cambrian AI Research, had a different approach to the news of the deeper U.K. investigation.

“Clearly the governmental agencies in Europe, especially in the U.K., have concerns,” said Freund. “But why did they approve the Arm acquisition by a Japanese financial conglomerate [in the past], but struggle to see why Nvidia is the best outcome for Arm? Nvidia has the capital needed to keep Arm ahead of RISC-V, and SoftBank wants out.”

U.K. Move Follows the EC’s Call for Its Own In-Depth Investigation

The expected action by the UK government comes less than three weeks since the European Commission (EC) first announced Oct. 27 that it was opening its own “in-depth investigation” of the proposed merger so it could ensure that it would not stifle fair competition in the marketplace, according to an earlier EnterpriseAI story. An earlier investigation by the EC determined it wanted more time to evaluate the proposal and its effects before it issues a final decision in the case.

The EC’s initial concerns about the proposed deal are that “the merged entity would have the ability and incentive to restrict access by Nvidia’s rivals to Arm's technology and that the proposed transaction could lead to higher prices, less choice and reduced innovation in the semiconductor industry,” the EC said in a statement.

“Following its preliminary investigation, the commission considers that Arm has significant market power on the market for the licensing of Central Processing Unit (CPU) IP for use in processor products,” the EC statement continued. “Therefore, the commission has concerns that the merged entity would have the ability to restrict or degrade access to Arm's technology by providers of processor products that Nvidia may compete with [in the marketplace].”

Those concerns surround hardware including data center CPUs, smart network interconnects (SmartNICs), semiconductors for automotive advanced driver-assistance systems (ADAS), SoCs and other systems, according to the EC.

The EC’s in-depth investigation will be conducted under the European Union’s Merger Regulation and the EC said it expects to issue a decision by March 15, 2022, which is 90 working days from its latest ruling.

Nvidia Arm Acquisition Timeline

Nvidia announced its $40 billion acquisition offer for Arm in September of 2020. Since that time, the proposed move has been the subject of controversy as well as praise.

Several major tech companies, including Google, Microsoft and rival chipmaker Qualcomm, have continued to vocally oppose the deal, issuing repeated concerns about its negative effects on competition and pricing.

But in June of 2021, three other chip companies – Broadcom, Marvell and MediaTek – backed the acquisition and began publicly saying that they see the move as one that could ultimately benefit their own businesses.

The Nvidia acquisition of Arm was set up when Japanese technology investment company SoftBank, which bought Arm in July of 2016 in a $32.25 billion all-cash deal, chose to sell the company after hemorrhaging cash since the first quarter of 2020. SoftBank had been looking to sell off assets to raise money after the company’s earlier bets on the rise of connected devices failed to pay off. The company’s Vision Fund, its AI investment fund, reportedly suffered a $13 billion annual loss in its fiscal year ending in March 2020.

Acquiring Arm would solidify Nvidia’s standing as a major player in wireless and other markets as it makes steady inroads in enterprise data centers. The graphics leader has released a stream of ever-more powerful GPUs targeting machine learning and other AI workloads that now dominate corporate data centers.

 

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