Despite being sold to Japanese investment group SoftBank in 2016, chip design company Arm is still seen as British in the UK. That is something that US chipmaker Nvidia has struggled to contend with since it first launched its bid for the company a long 14 months ago.
Nvidia has faced a clamour to see Arm listed in London and become a local tech champion in a post-Brexit world.
Ironically Nvidia, which has provoked such opposition, is now the only one offering assurances about continued investment in the country. SoftBank did make binding commitments that included keeping Arm’s HQ in the UK, but these expired in September.
But Nvidia has seen its hopes of buying Arm fade with each new blow from antitrust regulators. This week it was the turn of the UK, which started an in-depth investigation on both competition and national security grounds. It also emerged that the US has doubts about the deal.
Nvidia’s case is that Arm needs more support to complete its diversification from the maturing smartphone business into new markets like data centres, automobiles and the internet of things.
The transition has certainly dragged under SoftBank’s ownership, with losses in three of the last five years. Arm’s revenue has grown at a compound annual rate in the mid-single digits — a pace that hardly makes it a tech star.
A burst of growth in the last six months suggests that SoftBank’s investments are starting to bear fruit, but Arm itself cautions that significant revenue from new licences it has signed recently will take years to materialise.
Nvidia, the leader in a new form of accelerated computing that underpins markets like AI, has also promised to inject some of its own intellectual property into Arm’s licensing channel, raising its long-term prospects.
The fans of a stock market listing in London also risk sounding overly optimistic. Wall Street would be a far more likely venue.
Nvidia’s shares have soared in the 14 months since the deal was announced, jumping another 9 per cent on Thursday to lift the value of its cash-and-stock offer to $82bn, more than double its original value. That is roughly 40 times Arm’s revenue in its most recent fiscal year. The London market has hardly shown an appetite for high-priced new tech listings and would probably choke on anything like that valuation.
SoftBank will be hoping it does not miss a second chance to cash in on Nvidia’s stratospheric stock market rise. The Japanese investment firm sold out of an earlier investment too soon, dumping a near-5 per cent stake in 2019 for a profit of $3.3bn. Had it held on, those same shares would now be yielding an extra profit of more than $30bn.
Antitrust regulators in Europe, the US and China are laser-focused on a single issue: how can intellectual property that other chipmakers may rely on be allowed to pass into the hands of a single company, giving Nvidia the power to restrict its rivals’ access to the technology?
There are plenty of other corners of the tech world where market-leading companies also sell technology that some of their rivals depend on.
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Amazon Web Services accounts for around a third of the cloud infrastructure market, and many of its ecommerce competitors rely on its cloud services. Samsung, which has a big mobile handset business, is estimated to sell half of all memory chips used in smartphones. Qualcomm, which sells chipsets to handset makers, also licenses technology.
None of these are perfect comparisons, but they highlight two big differences with Nvidia.
One is that the various businesses of these companies are in some degree of balance, giving them strong incentives to maintain a degree of neutrality. That would not be the case for Nvidia: the Arm licensing operations would begin as little more than a rounding error, increasing the risk of Nvidia keeping the technology for itself.
The other big difference is that they were not the result of acquisitions. Had they been, antitrust regulators might well have stepped in to prevent such corporate combinations from happening.
It is not over yet. Nvidia’s guarantee that other companies will continue to have access to Arm technology has fallen on deaf ears, but it will get the chance to improve the offer. It is not clear if the regulators are angling for more concessions, or whether they’ll seek to block the deal. But the prospects for one of the biggest-ever transatlantic acquisitions are fading fast.
richard.waters@ft.com
