Nvidia Corp.’s bold $ 40 billion deal to purchase chip designer Arm Holdings could create a major new threat to both Intel Corp. and Advanced Micro Devices Inc. in the data center market, but the agreement will face two major obstacles along the way.
– best known for its graphics chips for players and servers – said on Sunday it had struck a deal with Softbank Group Corp.
purchase Arm Holdings Plc. in a deal worth $ 40 billion, in a mix of cash, stock and potential future payments. Softbank bought the Cambridge, UK-based chip designer in 2017 for over $ 32 billion, but has been pressured by activist investor Elliott Management to sell some assets, as its balance sheet and technology holding portfolio took a hit after WeWork, one of its major investments, collapsed in value.
The deal could make Nvidia a strong direct competitor to Intel, which passed in market value for the first time earlier this year, and AMD, the two leading developers of x86-based PC and server microprocessors. by Intel. Until now, Nvidia and its graphics chips have been complementary to their microprocessor families, but competitive with their graphics chips. A push to microprocessors, with Nvidia’s Arm ownership and its different RISC (reduced instruction set computer) architecture, could be the first real challenge for its Silicon Valley neighbors. But Nvidia may face challenges from both regulators and competitors-turned-customers to get there.
Eric Ross, an analyst at Cascend Securities, said in a statement that if the deal goes through, “the company that should be the most concerned at Intel”, because Nvidia will choose a central processing unit (CPU) core for the data center, in addition to the forays it has made with its graphics chips in that market.
“Further creative projects incorporating the best of CPUs and GPUs into a processor could be beneficial,” he said, adding that the deal certainly faces hurdles from many government regulators, not only from the United States, but also from the US. China.
Beyond regulatory hurdles, Nvidia could face some protests from Arm licensees, many of whom are Nvidia’s competitors. Arm is a unique chip company because it only licenses its designs to a wide range of companies, where they are primarily used in low-power devices such as smartphones, tablets and wearables.
Arm has over 500 licensees for its technology and these licensees can modify designs and customize them for their own products and customers. Arm’s largest customers include Huawei Technologies, Qualcomm Inc.
, Intel Corp.
MarketWatch has reached out to many of Arm’s major licensees for comments, but so far only Intel has responded, saying it declined to comment.
Bernstein Research analyst Stacy Rasgon asked Nvidia executives for more details on how they would keep the licensee model open in the companies’ conference call early Monday. Intimated, but not stated directly, in her question was the concern that some customers might not be comfortable with a competitor-owned Arm.
“We would like to protect the confidential information of all our customers the way we do today and the way Arm does today,” replied Nvidia co-founder and CEO Jensen Huang. “None of us really know what customers are doing with our technology. And of course, we work with all companies in the world, just as Arm works with all computer companies in the world. We protect everyone’s privacy. “
Rasgon said in a note to customers that if Nvidia pulls it off, “Nvidia’s domain will be extended to virtually every major computing domain that has undeniable strategic value, giving the company the opportunity to potentially differentiate along that path through. ownership in ways that they could not if they were mere licensees [of Arm]. “
Evercore ISI Securities said Nvidia will help further expand the Arm architecture in servers and network infrastructure and embedded AI markets, but analysts remained concerned about regulatory approval.
Nvidia executives told analysts on a conference call that they expected regulatory approval to take approximately 18 months, which is longer than the average approval cycle. In response to a question about China, Huang said the export control issue is not the ownership of Arm’s intellectual property, but the origin of the IP, which was created in the UK.
“Arm’s IP was originated, created, developed over three decades in Cambridge,” Huang said. “And so the amount of code, the amount of innovation is measured in thousands of human years. And so the IP will essentially remain in the UK, Arm’s headquarters will be in the UK. “
Even with this optimism, Rasgon noted that Arm’s licensees are likely to be “in arms”.
“There appears to be a risk that Nvidia ownership will compromise the current value of the asset,” he said.
Huang and Co. may face one of Nvidia’s toughest battles, but if Arm’s regulators and customers win, the company has a chance to be Silicon Valley’s new Chip King over a couple of longtime rivals.