Nvidia said that it would buy chip designer Arm from SoftBank in a cash-and-stock deal valued at up to $40 billion, a move that could reshape the landscape of the global semiconductor industry.
If the deal closes, it would transform Nvidia into one of the most dominant players in the market for chips used in smartphones. The deal would also strengthen the Santa Clara, California-based company's stature in other areas of the technology industry, including the Internet of Things—the tiny computers slapped on factory floors, cars, street lights, thermostats, and billions of other devices that communicate wirelessly—and cloud data centers.
The announcement on Sunday confirmed months of rumors about a possible deal. SoftBank, which purchased Arm for around $32 billion in 2016, has reportedly been considering a potential sale or initial public offering for the chip designer in recent months.
The technology conglomerate will have an ownership stake in Nvidia of less than 10% following the deal. “SoftBank is excited to invest in Arm’s long-term success as a major shareholder in Nvidia,” the firm's chief executive officer, Masayoshi Son, said in a statement.
Nvidia sells graphics processing units (GPUs) for playing games on personal computers and carrying out artificial intelligence chores in data centers. It also develops networking chips for ferrying around warehouses of cloud servers. Arm designs central processing units (CPUs) and other intellectual property that other companies assemble into chips that power in most of the world's smartphones. Arm designs are also starting to play a deeper role in cloud data centers.
"Uniting Nvidia's AI computing capabilities with the vast ecosystem of Arm's CPU [technology], we can advance computing from the cloud, smartphones, PCs, self-driving cars and robotics to edge IoT and expand AI computing to every corner of the globe," Jensen Huang, chief executive and co-founder of Nvidia, said in a statement. He added that the deal would "create the leading company computing company for the age of AI."
Under the terms of the transaction, Nvidia said it would purchase Arm for $21.5 billion in stock and $12 billion in cash, including $2 billion for signing the deal. The company also agreed to pay SoftBank up to $5 billion in cash or common stock based on the chip designer's business performance. The deal also includes $1.5 billion in stock compensation for Arm's employees.
The deal could also create a more formidable rival to US semiconductor stalwart Intel. Nvidia has overtaken Intel as the most valuable US chip company and currently holds a market cap of $310 billion. Nvidia shares have soared since last year, partly due to booming demand for chips that run AI calculations in data centers as businesses boost spending on cloud services. It has also been buoyed by surging sales of graphics chips for gaming amid the coronavirus pandemic.
Intel has a market value of roughly $210 billion. Advanced Micro Devices, another rival that sells graphics processors for data centers and personal computers, is currently valued at $90 billion.
Major chip vendors and technology giants have started to adapt Arm designs for use in personal computers and servers, where Intel has dominated for decades. In June, Apple said it would replace Intel processors in its Macs with a more energy-efficient, in-house design based on the Arm architecture. Cloud computing leader Amazon has also developed a homegrown, Arm server CPU that it rents out over its cloud service, giving its customers an alternative to Intel.
If closed, the cash-and-stock deal would be one of the largest takeovers in the semiconductor industry ever. At $40 billion, the deal would top Avago's $37 billion buyout of Broadcom in 2016.
The deal could draw opposition from other players in the semiconductor industry that are now facing the prospect of a rival having control over Arm's instruction set architecture (ISA), which acts as a basic set of instructions for designing a microprocessor. The concern is that the deal will give Nvidia an unfair advantage over Arm's other licensees, analysts said. More than 180 billion chips based on Arm’s intellectual property have shipped to date around the world.
Nvidia signaled that it is trying to address concerns that the deal could upset Arm’s customers, including Apple, Qualcomm, Intel and around 500 others, and compromise its status as an independent, neutral party. Nvidia said it would continue Arm's practice of licensing out chip designs to anyone willing to pay for them. Nvidia will also expand Arm's portfolio by licensing its own intellectual property for the first time, including its flagship GPU and AI technology.
The Silicon Valley company assured customers that it would preserve Arm's neutrality. “Arm’s business model is brilliant,” Huang said in a letter to Nvidia employees Sunday. “We will maintain its open-licensing model and customer neutrality, serving customers in any industry, across the world." Arm, which has around 6,000 employees, will also remain headquartered in Cambridge, England.
In a conference call with analysts on Sunday, he also pledged to "protect the confidentiality" of any information that companies share with Arm to build products that could potentially compete with Nvidia.
The deal will likely face regulatory scrutiny around the world, because it would give Nvidia control over the blueprints used by more than 500 companies globally, including some of Nvidia's rivals.
The deal could also be complicated by escalating tensions between the US and China, which could block the deal to prevent Arm’s technology from falling into the hands of an American firm. Washington has imposed sanctions to limit the supply of chips developed or produced with US technology to Huawei Technologies. The deal would give US-based Nvidia control over Arm, potentially leaving Chinese companies that use Arm's chips vulnerable to future US sanctions.
The boards of Nvidia, Arm and SoftBank have all approved the deal, which is expected to close in roughly 18 months, following regulatory reviews in the US, European Union, China, and the UK.
Huang played down the regulatory risks surrounding the deal and the impact of a US company owning Arm. He said Nvidia and Arm are "completely complementary" and that the deal would protect market competition in the semiconductor industry. "Nvidia doesn't design CPUs, we have no CPU instruction set and [don't] license IP to semiconductor companies, and so in that way, we're not competitors,” Huang said.
He added, “We have every intention to add more IP tools, and also unlike Arm, Nvidia doesn’t participate in the smartphone market."
Nvidia said that Arm would continue to use its name and brand and that its portfolio of intellectual property will remain registered in England.
