Maksim Kabakou - stock.adobe.com

News Stay informed about the latest enterprise technology news and product updates.

Nvidia acquisition of Arm faces industry, regulatory hurdles

Nvidia's acquisition of Arm Ltd. could change the chipmaker landscape and is reportedly raising industry and regulatory eyebrows.

Updated on April 19, 2021

Nvidia's acquisition of chip designer Arm Ltd. is facing a new hurdle: national security concerns in the U.K.

Oliver Dowden, digital secretary of the U.K. government's department for digital, culture, media and sport, issued a public interest intervention notice Monday, saying he believes national security interests are at stake should the U.S. company acquire Cambridge, U.K.-based Arm, which provides chip designs to major companies around the globe.

The intervention notice requires the U.K.'s Competition and Markets Authority to investigate the acquisition and issue a report by July 30. The Competition and Markets Authority will examine the transaction's national security and competition issues, according to a press release.

This is yet another regulatory hurdle facing the acquisition, which is also being reviewed by the Federal Trade Commission in the U.S.

"We want to support our thriving U.K. tech industry and welcome foreign investment, but it is appropriate that we properly consider the national security implications of a transaction like this," Dowden said in the press release.

Acquisition plans

Nvidia's acquisition of Arm could put the company in a new market position, but it faces a long road of regulatory and industry impediments to get there.

In September, the GPU manufacturer announced plans to acquire Arm for $40 billion. Arm designs chips and licenses the designs to more than 500 companies worldwide. Nvidia, which started in the gaming industry but has since made its way into PCs, mobile devices and autonomous vehicles, is looking to advance its portfolio through Arm's CPU and AI capabilities as well as gain access to new markets.

But the deal has reportedly raised eyebrows from Qualcomm as well as Google and Microsoft. As Arm customers, they may be worried that a change in ownership will give Nvidia, which would be taking over a critical supplier of chip designs, an unfair competitive advantage. The Federal Trade Commission is in the process of reviewing the acquisition, along with foreign governments.

Experts such as Jack Gold, president and principal analyst at IT advisory firm J. Gold Associates, said technology companies that use Arm's designs have a reason to worry. Nvidia seems to be setting itself up to become a full-service chip designer and maker, which could place Nvidia in direct competition with the chipmakers that will become its customers.

"Today, if Qualcomm is talking to Arm that's fine, they're not a competitor, there are secrets going back and forth, that's typical and Arm is doing that with everybody," Gold said. "Qualcomm isn't going to want to do that with Nvidia. So that's a real issue going forward."

Why there is concern

The Arm customer base is large and diverse, said Ashish Nadkarni, group vice president for IDC's worldwide infrastructure practice. Because of its open licensing model, anyone who wants to pay for the chip designs can use them.

Many mobile phone providers that make their own chips, including Samsung, Huawei, Apple and Qualcomm, use Arm as the intellectual property (IP) license provider for their chip design. Companies such as Amazon, Fujitsu and Xilinx also use Arm to make chips for their data centers. Indeed, Gold said Google spends a significant amount of money every year on building chips for their data centers, as does Microsoft, AWS and most big cloud vendors, for which the IP is licensed from Arm.

Arm even extends into the industrial market, operating in the hardware of autonomous vehicles, entertainment systems in vehicles and even entertainment consoles on airplanes.

The role of Arm Ltd.
The role of Arm Ltd.

"It's pervasive and it's quite behind the scenes, meaning the shaking of hands for Arm versus the manufacturer of the chip is not visible to the end user, unlike Intel, which makes sure its brand is placed everywhere," Nadkarni said.

If the acquisition goes through, Nvidia will be in a powerful position and could be selective about what companies it chooses to do business with, according to Nadkarni.

The Nvidia acquisition could also negatively shift Arm's focus, according to Gold. Arm is good at keeping up with inventive chip designs, which is why major tech companies rely on those services. If resources are used to develop new Nvidia products, the quality of the Arm IP could decline, he said.

Nvidia knew the deal could draw concerns. Last fall when news of the acquisition broke, Nvidia CEO Jensen Huang vowed to maintain Arm's open-licensing model. But, Nadkarni said, doing so is in direct conflict with Nvidia's closed-business operating model.

"The concern is which side of Nvidia is going to win out, is it the Arm side or is it the GPU side?" Nadkarni said. "And I think everyone is concerned it's the GPU side that will win out."

Deep Analysis founder and analyst Alan Pelz-Sharpe added that it might be hard for Nvidia to support Arm as-is if it doesn't see a return on its massive investment, especially in areas such as AI and IoT.

"If AI and IoT don't grow at such a fast clip -- and the history of IT tells you nothing grows quite at the clip that marketers tell you it does -- there could be pressure for them to make a quicker buck and see where they can change things around," Pelz-Sharpe said.

But he doesn't expect that to happen anytime soon, saying it doesn't make sense for Nvidia to change Arm's operating model since Nvidia could continue capturing the IP licensing revenue.

Deeply entrenched

One of the difficulties technology companies like Qualcomm may have in navigating the acquisition is Arm's broad reach and deep industry establishment, Pelz-Sharpe said.

If this goes through, it's not going to be by 12 touchdowns. It's going to be by a field goal.
Jack GoldPresident and principal analyst, J. Gold Associates

"Devices running all over the world are using these [Arm] proprietary designs, so they can't rip and replace those, that's not possible," Pelz-Sharpe said. "They have to carry on paying for that."

The technology companies could choose to end their relationship with Arm, but the decision to do so isn't straightforward, he said. "The longer-term question is can they build out their own equivalent or find alternatives," Pelz-Sharpe said. "The answer is yes, they can. But clearly if it was easy, they would've done it before."

Even while American companies worry about what the acquisition will bring, Nadkarni predicts a much bigger fight is waiting in China.

The acquisition will graduate Nvidia to independent chipmaker that not only makes but designs its own chips, which could make licensing Arm to competitors suddenly questionable, particularly for a company like Huawei.

Huawei is developing its own GPUs and is a competitor to Nvidia, Nadkarni said. Huawei and Arm do business through Arm's joint venture in China. If Nvidia owned Arm, not only would Arm become a competitor, but it would open up Huawei, a Chinese company, to potential U.S. restrictions.

"The Chinese companies were banking on Arm because it was not an American company, it was a British company and they have a joint venture in China and the joint venture effectively shielded them from any sanctions that the U.S. could place on China," Nadkarni said. "If Nvidia, an American company, owns Arm, the Chinese are not going to have their independence. I don't know what they would ask for from Nvidia to get this cleared, but it's not going to be a light touch, that's for sure."

Several startup chip vendors that license Arm IP in China could also be affected by the Nvidia acquisition, Gold said.

Gold said opposition from both Europe and the U.S. is also coming, which could delay any major decision on whether to approve the acquisition.

"If this goes through, it's not going to be by 12 touchdowns," Gold said. "It's going to be by a field goal."

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington Star-News and a crime and education reporter at Wabash Plain Dealer. Makenzie graduated from Indiana University Bloomington in 2015 with a B.A. in journalism and international studies.

Next Steps

Nvidia releases new AI software, hardware

Nvidia SDK simulates quantum computing circuits on GPU systems

Nvidia extends its AI reach with cloud-based development hub

Dig Deeper on Artificial intelligence platforms

SearchBusinessAnalytics
SearchCIO
SearchDataManagement
SearchERP
Close