On December 2, US time, the US Federal Trade Commission (FTC) issued a statement stating that it will file an administrative lawsuit against Nvidia’s acquisition of ARM to prevent the largest acquisition in the semiconductor industry in history.
In response, Nvidia responded that it will continue to demonstrate the benefits of the acquisition of ARM, “We will continue to work hard to prove that this transaction will benefit the industry and promote competition.”
Whether to harm competition becomes the focus of supervision
In September 2020, Nvidia announced that it would spend US$40 billion to acquire its British chip design subsidiary ARM from SoftBank in cash and stock.
ARM is a chip manufacturer with a relatively special business model. It does not produce and sell chips itself. The main profit model is to sell to integrated circuit design companies through designing instruction set architecture and related IP, charging licensing fees and patent fees. Last year, Apple built the M1 series of chips based on the ARM architecture, facing the competition with Intel’s x86 architecture in the PC industry, allowing a series of semiconductor companies such as Nvidia and Qualcomm to see the potential of ARM. In the mobile phone field, chips based on the ARM architecture are commonly used in well-known smart phones on the market today.
Nvidia is currently the largest semiconductor company in the United States by market capitalization. Its current market value is now over 700 billion U.S. dollars. Its business scope spans chip design, finished product sales, driver and software development, and product after-sales. Under the dual positive blessings of Metaverse and the gaming and e-sports industry, Nvidia is one of the most promising technology giants in the capital market.
Therefore, for the largest historical acquisition in the history of the chip, some technology companies expressed concern that after being acquired by Nvidia, ARM’s core businesses will lose valuable neutrality and independence, including Google, Microsoft, Qualcomm, Huawei, SMIC and other companies have successively expressed their opposition to this acquisition, and the pros and cons of the transaction for the semiconductor industry have triggered heated discussions among all parties.
And ARM itself is reluctant to be acquired. After learning about Nvidia’s acquisition intention, ARM co-founder Hermann Hauser quickly issued an open letter calling on the British government to rescue ARM. He stated in the letter that if Nvidia acquires ARM, it will be a catastrophic event for the entire industry. Not only will ARM’s employment opportunities in the UK disappear, but it will also destroy ARM’s business model.
The analyst firm Industrial Securities also commented that ARM’s IP licensing model has always been “neutral” to global customers, and there is still uncertainty about whether it can continue to be neutral to the world in the future.
After receiving appeals from all parties, the acquisition has aroused close attention from regulators. An analyst in the direction of chip licensing told AI Finance and Economics that because ARM is headquartered in the United Kingdom, and its business scope covers the United States, the European Union, Japan, China and other markets. Without the approval of the above-mentioned jurisdictions, it is expected that the acquisition will be difficult to proceed.
For example, in 2018, Qualcomm announced the abandonment of its original plan to acquire NXP Semiconductors for $44 billion. The reason was that China, one of the countries that had to approve the agreement, refused to approve the merger plan, which caused the merger to “abortion.” Prior to this, the acquisition has been approved by the regulatory authorities of eight countries and regions, including the United States, the European Union, Japan, Russia, and South Korea.
In fact, the US procedural law for review of mergers and acquisitions authorizes the FTC and the Department of Justice’s antitrust department to evaluate mergers and acquisitions, and both departments have the right to challenge. The reason given by the FTC is that the acquisition will allow Nvidia to control the computer technology and design required by competitors to develop chips. If the deal is concluded, the development of next-generation semiconductor technology, including the Internet of Things, will be at risk of being stifled and will damage semiconductors. Competition in the market.
The failure of the acquisition has little impact on Nvidia
In the face of opposition from many parties, Nvidia has repeatedly emphasized that the transaction will benefit the development of ARM itself and the chip industry. If the acquisition can be completed, it will work to retain ARM’s open licensing model and ensure that its IP is available to all current and future interested parties. Use by licensee. In other words, Nvidia will not stop ARM’s shipments.
Foreign media reported that Nvidia has submitted an application for review to Chinese regulators. China’s anti-monopoly law stipulates that if the global revenue of two companies to be merged or acquired exceeds 10 billion, and each of them has revenue of more than 400 million in China, or the combined revenue of two companies in China exceeds 2 billion, each At least the revenue in China exceeds 400 million, which must be approved by China.
But judging from the current progress, Nvidia was unable to convince the US government at home, “Will the Chinese Ministry of Commerce let it go?” The person said frankly. “But Nvidia is proud in the capital market, and the impact of the acquisition failure should be relatively small.”
At present, the market has strong demand for Nvidia GPUs and data center AI chips, boosting the company’s performance and stock prices. Starting in 2015, relying on its advantages in the field of graphics processors, the company’s stock price has risen by more than six years. At 7000%, with the double gimmicks of “All Universe” and “Meta Universe”, its market value is marching towards 800 billion US dollars.
It is reported that the deadline for this acquisition is September 2022. If the acquisition by Nvidia still fails to pass the review of all parties, then a total of US$1.25 billion in advance payment will be lost, leaving little time for Nvidia.