Relief and challenges for chipmakers as Nvidia-Arm megadeal collapses

Relief and challenges for chipmakers as Nvidia-Arm megadeal collapses

by Joseph Anthony
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The chip industry is breathing a sigh of relief over the aborted purchase of ARM Ltd by US chipmaker Nvidia Corp (NVDA.O) but the firms and their shareholders are left with challenges the deal would have addressed.

Announced in 2020, Nvidiaโ€™s plan to buy Britainโ€™s Arm from Japanโ€™s SoftBank was seen worth up to $80 billion and sparked an immediate backlash.
There were concerns that the deal might violate Armโ€™s status as a neutral player in the hyper-competitive chip sector.
Many analysts warned the deal was โ€œdoomed from the startโ€, due to anti-competitive regulatory concerns and geopolitical tensions.
This prediction played out on Tuesday as SoftBank shelved the sale citing those very regulatory hurdles, with the transaction drawing scrutiny in the United States, Britain and European Union.
โ€œThe whole point about Arm was always that it was the Switzerland of the semiconductor industry, dealing very even-handedly with all of its 500-plus licensees. That wasnโ€™t lost on the regulators in the UK, the US., EU and China,โ€ Hermann Hauser, a founder of Arm, told Reuters.
โ€œThereโ€™s a chip war going on around the world, so many werenโ€™t very welcoming of such a key architecture firm going to the US,โ€ said Greg Roh, head of research at Seoul-based Hyundai Motor Securities.
โ€œCountries are competitively trying to build up their chip industries, and will try to defend against their chip technology moving to another country,โ€ he said.
Due to their low energy consumption, Arm-based chips were perfectly suited for mobile devices, and the companyโ€™s technology underpinned the smartphone wave, licensing more and more powerful processor designs to Apple (AAPL.O) and its rivals.
The merger would have boosted both companiesโ€™ ambitions to crack the booming data centre sector, which is currently dominated by Intel Corp and its x86 architecture.
In April, Nvidia announced plans to release a specialised central processing unit (CPU) chip for data centres called โ€œGrace,โ€ based on Armโ€™s architecture. That was viewed at the time as a harbinger of the charge the firms would make together into the sector.
Arm makes instruction set architecture (ISA) which it licenses to a wide range of companies, which use it to make blueprints for chip designs.
Arm dominates the market for smartphone application processors, with customers including Apple and Qualcomm Inc (QCOM.O).
Nvidia, meanwhile, makes graphics processing units (GPUs) used for high-performance computing applications and gaming.
Stacy Rasgon, who tracks the chip sector Bernstein Research, says that Nvidia is not solely reliant on Arm to fulfil its data centre ambitions.
But he said it would be harder for Nvidia to build out a software ecosystem around those chips on its own, โ€œso buying ARM would be helpful for thatโ€.
DOWNSIDES TO IPO
With the sale collapsed, Arm said it now aims to go public in 2023 having gone private in 2016 when SoftBank purchased it.
In an interview with Reuters, newly appointed Arm CEO Rene Haas said he is โ€œexcited about the opportunity to be a publicly listed company again.โ€
But the company itself, together with Nvidia, had as recently as December tried to persuade British regulators that a deal with Nvidia was more favourable than an IPO.
They said going public would steer Arm to focus on short-term profits at the expense of its much needed foray into the server sector, especially as growth in the smartphone industry has slowed.
โ€œWhile Armโ€™s licensees such as Apple, Qualcomm, and Amazon have enjoyed skyrocketing revenue growth and profits, as well as soaring market valuations, Arm has lately endured comparably flat revenues, rising costs, and lower profits that would likely present challenges for a 30-year old public company,โ€ they said in a jointly-issued letter.
Still, there may be a silver lining, said Stewart Randall, who tracks the sector at Shanghai-based consultancy Intralink. He said that while a listed company is beholden to its shareholders, it potentially is also under greater pressure to be innovative and competitive.
โ€œRevenues have grown pretty slowly under SoftBank. I hope this lights a fire under them,โ€ he said.
REUTERE

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