Nvidia Addresses CMA Concerns Over Arm Merger in Strategic Response
NVIDIA Attempts to Address Arm Merger Concerns in CMA Response
The UK’s Competition and Markets Authority (CMA) has released statements from NVIDIA and Arm aimed at mitigating worries regarding their proposed merger. NVIDIA announced its plans to acquire the Cambridge-based Arm in September 2020 for a substantial sum of $40 billion. Given the prominence of both companies in chip manufacturing, this deal has drawn the scrutiny of competition regulators globally.
In November 2021, UK Digital Secretary Nadine Dorries chose to block the merger, pending outcomes from a comprehensive 24-week ‘Phase 2’ investigation. There has been speculation about whether an IPO might serve as a viable alternative for Arm, which has faced stagnant revenues and escalating costs despite the successes of major licensees such as Apple, Qualcomm, and Amazon. SoftBank, Arm’s current owner, contemplated an IPO in both 2019 and early 2020 but ultimately decided against it.
Simon Segars, CEO of Arm, noted, “We considered an IPO but found that the pressure for short-term revenue growth and profitability could hinder our capacity to invest, innovate, and expand.” With the mobile sector being Arm’s largest market now saturated, penetrating datacenter and PC markets poses challenges due to established rivals like Intel and AMD, which dominate the ecosystem with their considerable R&D capabilities.
NVIDIA argues that the acquisition would equip Arm with the necessary resources to advance amidst restricted choices. The company expressed concern that external pressures could force Arm to focus narrowly on its core mobile and growing IoT markets, potentially allowing Intel and AMD to control a concentrated CPU market. According to NVIDIA, the profits amassed by Arm’s clients do not benefit the firm nor promote competition.
NVIDIA emphasized that it was SoftBank, not NVIDIA, which initiated discussions about the acquisition. The company reassured that it would continue to support x86 architecture due to its interest in platforms like Omniverse while also aiming to foster a viable alternative ecosystem to stimulate competition among x86 strongholds.
Arm’s Future as a British Tech Icon
From the UK’s perspective, concerns include the potential impact on jobs and the company’s long-term presence within the country. Hermann Hauser, Arm’s founder, previously remarked that the acquisition might amount to “surrendering the UK’s most powerful trade weapon to the US.” In its binding offer, NVIDIA pledged to enhance Arm’s engineering teams in the UK, committing to establish a new group focused on developing specialized CPU IP for datacenters and PCs.
NVIDIA’s decision to set up its Cambridge-1 supercomputer in the UK was interpreted as a demonstration of its commitment to the region. Furthermore, the firm inaugurated a new AI center in Cambridge, home to a growing array of innovative startups in the sector such as FiveAI and Darktrace. NVIDIA CEO Jensen Huang stated, “We will establish an open center of excellence in the area once inhabited by giants like Isaac Newton and Alan Turing, whose names are linked to key NVIDIA technologies.”
The acquisition of Arm by Nvidia has raised significant concerns, particularly regarding the potential for the merged entities to limit or restrict the licensing of future intellectual property (IP), thereby giving Nvidia a competitive edge. Nvidia counters this by highlighting the rise of RISC-V and other alternatives to Arm, suggesting that these could become attractive options if the merged entity chooses to withhold licensing for new datacenter IP. However, Nvidia argues that such a scenario could take many years to materialize, as customers already possess the necessary IP and will not be renewing contracts for quite a while.
Additionally, Nvidia asserts that it has no economic motivation to foreclose competition: “Nvidia understands that such a strategy would be detrimental to its own interests, and there’s no reason for any downstream customer to opt for a sole-source ecosystem. The x86 architecture has always supported two legitimate suppliers—Intel and AMD—and is now available for licensing by anyone.” It emphasizes that Arm’s clients are also Nvidia’s clients, implying that any attempt to restrict access would harm its business and reputation.
While regulatory agencies in various regions, including the UK, US, China, and EU, are deliberating the approval of this acquisition, Nvidia claims that competitors of Arm are capitalizing on the hold-up, expanding their offerings in the meantime. Although Nvidia presents compelling arguments in defense of the acquisition, whether these will convince regulators remains uncertain.
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