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Doomed From the Start? Why Nvidia Failed to Buy Arm From SoftBank

David Paul Morris | Bloomberg | Getty Images
  • The semiconductor giants issued a joint statement Tuesday saying the deal has been scrapped due to "significant regulatory challenges."
  • Hermann Hauser, an entrepreneur who was instrumental in the development of the first Arm processor, came out strongly against the deal.
  • British lawmakers including shadow Business Secretary Ed Miliband and tech giants like Qualcomm, Google and Microsoft followed suit.
  • Opponents had several gripes with the acquisition, ranging from tech sovereignty to U.K. job security.

Nvidia's bid to buy Arm from SoftBank has finally ended in failure.

The semiconductor giants issued a joint statement Tuesday saying the deal has been scrapped due to "significant regulatory challenges."

But was the acquisition doomed from the beginning?

The takeover was announced to much fanfare back in Sept. 2020, with both firms saying it will create the "world's premier computing company for the age of AI."

Instantly, however, there were critics. Hermann Hauser, an entrepreneur who was instrumental in the development of the first Arm processor, came out strongly against the deal. British lawmakers including shadow Business Secretary Ed Miliband and tech giants like Qualcomm, Google and Microsoft followed suit.

Opponents had several gripes with the acquisition, ranging from job security to tech sovereignty. But the main issue with the deal was around access to Arm's innovative chip designs.

Arm licenses its "architecture" to hundreds of companies around the world. Apple uses them in iPhones and iPads, Amazon uses them in Kindles, and car manufacturers use them in vehicles.

If Nvidia stopped other companies using Arm's chip designs in their semiconductors then analysts said the implications could have been huge.

Before long, competition regulators in the U.S., the U.K., China and Europe were investigating the deal from all angles, leading tech investors and analysts to speculate that the acquisition would never gain approval.

Nvidia and Arm attempted to win the regulators over, saying they would invest heavily in Arm and allow other firms to keep using the company's chip designs, but ultimately their efforts were in vain.

Headquartered in Cambridge, U.K., Arm was independent until 2016, when SoftBank bought it for $32 billion.

Arm was spun out of an early computing company called Acorn Computers in 1990. The company's energy-efficient chip architectures are used in 95% of the world's smartphones and 95% of the chips designed in China. With 6,000 staff globally and 3,000 in the U.K., Arm is widely regarded as the jewel in the crown of the British tech industry.

Geoff Blaber, CEO of analyst firm CCS Insight, said the deal has faced intense scrutiny and pressure from the start.

"It's no surprise that the deal has ended in failure," he said in a statement. "Finding a way to appease regulators whilst maintaining the value and justifying the $40 billion price tag has proven overwhelmingly challenging."

"CCS Insight stated in September 2020 that the deal would face huge opposition, most notably from Arm licensees who at that point had collectively shipped an average of 22 billion chips annually," Blaber added.

"As predicted, opposition was considerable and shone a light on the strategic importance of Arm's technology and the vital need for Arm to remain independent."

SoftBank is now planning to list Arm on the stock market in 2023, although it hasn't specified whether the IPO will take place in Britain, where Arm was born, or in New York, where tech companies tend to achieve higher valuations.

"An IPO is a far better option for the Arm ecosystem but is unlikely to provide Softbank a comparable return," Blaber said.

Russ Shaw, founder of the Tech London Advocates lobbying group, said in a statement that it's "essential" Arm's IPO happens in the U.K. and that the London Stock Exchange becomes the company's new home.

"Now that the deal is officially off, it is vital the U.K. focuses on maintaining ownership of one of our most precious and influential tech assets," he said.

The global chip shortage has made many nations start to think about onshoring more semiconductor design and production. The European Union laid out a multi-billion plan to boost chip production across the bloc on Tuesday.

Shaw added: "With the global chip shortage crisis showing little sign of easing — affecting all industries and impacting our everyday lives — businesses like Arm have a crucial role to play in sustaining the U.K.'s position as a leading player on the international tech and economic stages. We simply must protect our digital sovereignty by maintaining ownership of ARM - a jewel in the crown of our semiconductor industry." 

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