Semiconductors aren’t just a basic building block of technology anymore. With devices of all sorts (like appliances, vehicles, industrial equipment, and more) getting turned into computers and hooked up to a network, chips are a basic commodity governing the development of virtually the entire economy. The further advancement of chip tech and the type of capabilities they can unlock are of interest to all sorts of industries, not just in the domain of technology.
That’s why NVIDIA‘s (NASDAQ:NVDA) pending acquisition of ARM Holdings from SoftBank Group is of such interest. Many companies have voiced their opinion on the proposed tie-up — some in opposition to the deal, but others in favor of it. As a reminder, ARM is the patent holder and licensor of a wide range of chip architecture designs and related software code used in implementing chips into a computer system. ARM says some 70% of all people on the planet use a device with an ARM-based piece of circuitry in it. Suffice to say, a large and diverse number of organizations are customers, including NVIDIA itself.
The stakes are high, and NVIDIA acquiring ARM could shift the balance of power in the chip industry in a big way.
The prosecution’s argument
NVIDIA and ARM have stated they’re confident the tie-up will be complete by the end of the first quarter of 2022. At the moment, though, regulators around the globe are looking into the affair. This sounds like it puts the marriage in jeopardy, but it’s worth remembering that regulators questioning big deals like this is normal. Governments want to be sure a merger doesn’t create unfair advantages in the marketplace. And the fact that ARM is a key licensor of chip tech to practically the entire global economy adds to the burden on antitrust regulators. So they want to make sure they get this one right, especially in light of other tech giant deals (for example, Facebook‘s purchase of Instagram and WhatsApp) being called into question after the fact.
But that hasn’t stopped some chip rivals from trying to amplify the alarm bells, and Qualcomm is chief among them. Qualcomm, whose chip designs can be found in most smartphones around the globe, has said it’s worried NVIDIA could limit access to ARM’s chip licenses and keep ARM’s best patents to itself. Qualcomm has built its mobile chip empire with liberal use of ARM designs, and has more recently added that it would be open to investing in ARM if regulators blocked NVIDIA’s move. Alphabet‘s Google and Microsoft, also ARM customers, have voiced similar concerns about NVIDIA limiting access to ARM.
For the record, NVIDIA has promised that’s not what it would do. It has even said it would be willing to sign legal agreements not to limit other chip designers’ access to ARM licenses. In fact, NVIDIA’s stated goal here is to inject its own technology (like its work on GPUs for use in AI) into ARM to give the entire industry a shot of innovation and provide customers with new options. This makes sense. Intel is far and away the industry-defining titan here, with some $78 billion in annual sales (NVIDIA has hauled in a comparatively small $19 billion in the last 12 months), but NVIDIA-plus-ARM could give engineers and electronic systems developers new choices.
Though the tides of change are already flowing, smaller companies are calling foul. Interestingly, one vocal opponent to NVIDIA has been U.K.-based chip start-up Graphcore, which is working on its own competing chip designs built specifically for AI computing. NVIDIA is riding incredible momentum in the AI department. Keeping ARM independent could help smaller firms like Graphcore stay competitive before NVIDIA can pull too far ahead in the race.
Long story short, while there are concerns around NVIDIA’s bid for ARM and potential long-term ramifications — namely, NVIDIA accelerating its position as a dominant chip industry leader — the voices against the deal may have their own agenda beyond just concerns about purchasing ARM chip licenses.
What the defense has to say
Besides NVIDIA and ARM themselves, there are some peers voicing support for this merger. The biggest company is none other than chip design giant Broadcom. Granted, Broadcom is facing its own antitrust settlement right now with the Federal Trade Commission (FTC), which accused Broadcom of monopolistic practices. Nevertheless, Broadcom is backing NVIDIA after receiving assurances ARM tech would continue to be available to all industry players. Broadcom, by the way, is a major ARM customer.
Two other ARM customers — Marvell Technology Group and MediaTek — are also piping up with support after having their concerns assuaged that ARM will remain available on a non-discriminatory basis. MediaTek’s CEO has said the chip designer thinks NVIDIA and ARM could help bring “more competitive and comprehensive products to the marketplace.”
Put another way, NVIDIA planning to turbocharge ARM’s tech with fresh research and development could create new winners in the industry. Some of the incumbents voicing concerns might have the most to lose if the playing field is leveled and an NVIDIA-backed-and-funded ARM brings new semiconductor designs and licenses to the fore.
As already mentioned, the winds of change are already blowing regardless of whether NVIDIA’s ARM acquisition is completed. This deal could be facing some opposition (or getting some encouragement) in an attempt to slow down or quicken the pace of change — depending on what each player in the semiconductor industry has to lose or gain.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Need Your Help Today. Your $1 can change life.