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

Update: UK Orders In-Depth Antitrust Investigation into Proposed $40B Nvidia Arm Acquisition 

With antitrust and national security concerns continuing amid the proposed $40 billion acquisition of U.K.-based Arm Ltd. by Nvidia, the British government today (Nov. 16) ordered an in-depth, 24-week “Phase Two” investigation into the proposed deal.

The U.K.’s deepened investigation, which will be conducted by the government’s Competition and Markets Authority (CMA), follows a similar follow-up investigation into the proposed acquisition that was undertaken just three weeks ago by the European Commission.

The U.K.’s Phase Two investigation was ordered by Nadine Dorries, the nation’s Secretary of State for Digital, Culture, Media and Sport, following her review of an earlier Phase One report into the proposed acquisition that was completed in August. The Phase One report from the CMA criticized the proposed acquisition, saying it could “lead to a realistic prospect of a substantial lessening of competition” in the globally-important chip industry. The CMA was tasked with evaluating the deal on competitive and national security grounds and reporting back to the government.

Nadine Dorries, UK Parliament

“I have carefully considered the Competition and Market Authority’s Phase One report into Nvidia’s proposed takeover of Arm and have decided to ask them to undertake a further in-depth Phase Two investigation,” Dorries said in a statement today. “Arm has a unique place in the global technology supply chain, and we must make sure the implications of this transaction are fully considered. The CMA will now report to me on competition and national security grounds and provide advice on the next steps. The government’s commitment to our thriving tech sector is unwavering and we welcome foreign investment, but it is right that we fully consider the implications of this transaction.”

Dorries said the Phase Two report is expected back to her from the CMA within 24 weeks but could also extended by up to eight weeks.

The CMA’s Phase One report listed concerns about the potential merger, including the possibility of a “substantial lessening of competition across four key markets” – data centers, internet of things, the automotive sector and gaming applications. Also noted in the report were concerns about national security interests.

Dorries, who is also a member of the British Parliament, has the authority to review the matter under the U.K. Digital Secretary’s statutory powers through the nation's Enterprise Act 2002, according to her office. The Enterprise Act 2002 enables the CMA to scrutinize and intervene in potentially anti-competitive mergers and acquisition activity. The Enterprise Act 2002 also allows the U.K. Secretary of State to make quasi-judicial decisions to intervene in mergers on behalf of public interest when it comes to national security, media plurality, the stability of the U.K. financial system or to combat public health emergencies.

When the Phase Two investigation is completed, its results will be sent to Dorries for action, which could include several options. She could decide the proposed acquisition would negatively affect public interests on national security and/or competition grounds and then take action to remedy those negative effects. She could also decide there are no adverse public interest findings and refer the case back to the CMA to remedy any competition concerns that are identified.

A Nov. 15 story by EnterpriseAI reported that Dorries’ Phase Two investigation order appeared to be imminent based on a report by The (London) Times.

The U.K.’s Phase Two investigation order 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 previous 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 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, 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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