Approval for Nvidia’s ARM acquisition might come down to the wire

Nvidia's purchase of ARM sure is taking a while, and today the company told the Financial Times it is unlikely to meet the 18-month regulatory window it initially laid out. The blockbuster $40 billion deal was announced in September 2020, and it would give Nvidia control of the world's most popular architecture, used by Apple, Samsung, Qualcomm, Huawei, Google, Amazon, Microsoft, and a ton of other companies.

 

Nvidia CEO Jensen Huang told the Financial Times, "Our discussions with regulators are taking longer than initially thought, so it’s pushing out the timetable... It’s not one particular regulator, but we’re confident in the deal, we’re confident regulators should recognize the benefits of the acquisition."

 

Nvidia is facing several problems with regulators. First up, regulators in ARM's home country, the UK, have national security concerns. Bloomberg spoke with a "person familiar with the matter" and reports that "the UK is currently inclined to reject the takeover" as it currently stands. Of course, Nvidia could make some concessions to push the deal through, but Bloomberg quotes one analyst as saying investors have "low expectations" that the deal will go through.

 

FT also notes in the UK that "the deal has become a politically charged symbol of the country’s loss of corporate influence in the face of foreign takeovers." Neither this nor the "national security" concerns make a whole lot of sense because the "foreign takeover" has already happened, though. ARM has been owned by the Japanese company Softbank since 2016, and now Softbank is selling ARM to Nvidia, an American company.

Does China want another major pillar of technology in the US?

A country that will probably have serious concerns is China, which is still reeling from the US export ban on Huawei, one of China's biggest companies. In the smartphone market, Huawei has plummeted from a first-place perch down to the "other" category in most marketshare charts thanks to the ban. Huawei also is the world's No. 1 telecom equipment manufacturer, and it's finally starting to see some losses in that market, too. Nvidia buying ARM would represent even more US control over the smartphone and wider technology market.

 

Part of the delay with Chinese regulators is apparently Nvidia's fault: the company only submitted an application to Chinese regulators in June 2021, eight months after the announcement of the deal. The company now has to wait as long as 18 months from that date for the investigation to complete, which would push things to December 2022. Nvidia basically ended up waiting until the last minute—the deal with Softbank will be void if Nvidia can't close by the end of 2022.

 

Nvidia wouldn't be the first company to have a huge tech deal shut down by Chinese regulators. Back in 2016, Qualcomm tried to buy NXP for $47 billion, but the company failed to secure Chinese regulatory approval in time and ended up abandoning the deal in 2018.

 

ARM licenses the ARM chip architecture and pre-made CPU designs to many huge companies in tech, and these licenses underpin major products for many companies. Under Softbank, ARM was seen as a neutral party, since Softbank doesn't compete with ARM licensees and Japan isn't currently engaged in a trade war with China. Nvidia has a reputation of being hard to work with, and it's unclear how well "Nvidia ARM" would work with others. It's also not clear how the company would inevitably try to connect ARM licensing with its GPU business (ARM also designs mobile GPUs to pair with its CPUs).

 

Nvidia insists it will keep ARM "neutral," and the company has a whole website dedicated to pitching the merger to the world. Specific pages detail Nvidia's "vision" for ARM in the UK, Europe, and China—so, there's a page for each regulatory body that has raised concerns about the deal. If Nvidia doesn't live up to all of its promises, the industry is side-eyeing the open source RISC-V architecture as a possible escape hatch, although that would take a massive, coordinated industry-wide effort to replace ARM. If the deal with Nvidia doesn't go through, Softbank might opt to list ARM on the stock market rather than sell it outright. For now, time's ticking.