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Dec 2, 2021

U.S. sues to block Nvidia’s US$40B chip deal for Arm

Kim Bolton discusses Nvidia vs. Taiwan Semiconductor

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U.S. antitrust officials sued to block chipmaker Nvidia Corp.’s proposed US$40 billion takeover of Arm Ltd., saying the deal would hobble innovation in semiconductors and undermine Nvidia’s rivals.

The Federal Trade Commission said in a release Thursday that the acquisition would deliver Nvidia vast sway over the market by giving the company control over chip designs used by the world’s biggest technology companies, including makers of smartphones, factory equipment and cars.

“The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies,” FTC Bureau of Competition Director Holly Vedova said in the statement.

Arm, owned by SoftBank Group Corp., is known as the Switzerland of the semiconductor industry. It licenses its technology to hundreds of companies, while competing with none of them. All major chipmakers are Arm customers and many of these companies, including Qualcomm Inc., Intel Corp. and Advanced Micro Devices Inc., sell chips that compete directly with products from Nvidia. 

That reach has made ownership of Arm such a contentious issue because of the advantage it might give a new owner, if that acquirer is a chipmaker. Under CEO and Founder Jensen Huang, Nvidia has become the world’s most valuable publicly traded semiconductor maker as investors have bought the stock, backing his expansion into new markets outside of graphics chips.

Nvidia, based in Santa Clara, California, held most of its gains for the day after the news to close up 2.2 per cent at US$321.26 in New York. That lifted the stock to an increase of 146 per cent this year, blowing past rallies for broad U.S. indexes and making the stock-based transaction even more attractive for SoftBank.

Nvidia said in a statement that the Arm acquisition will benefit the industry and promote competition. 

“Nvidia will invest in Arm’s R&D, accelerate its roadmaps, and expand its offerings in ways that boost competition, create more opportunities for all Arm licensees and expand the Arm ecosystem,” the company said.

Nvidia agreed to buy Arm from SoftBank in September 2020 for about US$40 billion, setting a record for a chip-industry takeover. And an increase in the value of Nvidia stock -- the main component of the sale price -- sent the value of the transaction even higher.

The complaint comes as the Biden administration and members of Congress are debating ways to bolster semiconductor production amid a global shortage and also to make the U.S. more competitive with China. 

The U.S., which still leads the world in chip design, has lost a significant share of global chip manufacturing capacity over the last 30 years, falling to 12 per cent from 37 per cent in 1990, according to the Semiconductor Industry Association.

Qualcomm is among companies that raised competition concerns about the deal, which is also facing a national security review in the U.K., where Arm is based. Bloomberg Intelligence said in a note after the complaint was filed that the deal is likely to face challenges from other investigating authorities, including the European Commission, the U.K.’s CMA and Chinese regulators. 

Arm’s technology is dominant in smartphones, where it’s used by both Apple Inc. and Samsung Electronics Co., as well as by Qualcomm, whose chips are the basis of most of the industry’s premier models. Arm also has made inroads into computing, including Apple’s M series processors, and data centers, with Amazon.com Inc.’s in-house designs using the technology in server chips.

Nvidia made its name in graphics chips for gaming systems and has pushed into processors that run servers. Booming sales have pushed its market valuation past US$800 billion, making it the world’s most richly valued chipmaker.