China and the UK seem to be unhappy for Nvidia's acquisition of ARM

Sep 17, 2020 Hardware HUAWEI

After nearly three months of speculation, repeated reversals and denials, the rumors have finally settled down.

On September 14, Beijing time, Nvidia officially announced that it would acquire SoftBank's ARM for $40 billion. If the deal is finalized, it would be the largest acquisition in the history of the semiconductor industry.

At the online media conference on Nvidia's acquisition of ARM, Nvidia CEO Jen-Hsun Huang reiterated the significance of acquiring ARM, which covers a wider range of computer ecosystem equipment categories. The acquisition will further expand Nvidia's ecosystem and increase its financial gross margins. Earnings per share are also helpful.

It is understood that after the completion of the transaction, ARM will operate independently as a division of Nvidia. Besides, its headquarters will remain in Cambridge, UK, and Softbank will retain a 10% stake in ARM. During the online conference, there is widespread focus on how to ensure ARM's neutrality and independence, and how it will affect ARM's customers.

Nvidia CEO Jen-Hsun Huang assured that "Nvidia has a strong desire to maintain ARM's independent operation. After all, an independent business model is the only way for ARM to continue to expend its success". Simon Segars, CEO of ARM, also said that ARM is in communication with many of its customers to clarify to everyone that ARM will maintain its neutral and independent business model.

Nonetheless, Nvidia's acquisition of ARM has caused intense concerns in the industry. On the day of the deal announcement, the voice of opposition first began to fester within ARM. ARM co-founder Hermann Hauser issued an open letter to the British government stating that "if the American company Nvidia acquires ARM, the deal would be a complete disaster for Cambridge, the UK and even Europe that can destroy ARM's neutrality and business model. Even worse, a considerable part of it is in direct competition with Nvidia, which means that the agreement will create  industry monopoly."

In China, since the news of Nvidia's acquisition of ARM, it has already affected the industry's sensitive nerves. In particular, the United States has blocked Huawei for three consecutive times, cutting off the path of Huawei's software, chip architecture licensing and chip foundry. At present, TikTok is facing a special node withdrawing from the U.S. market, therefore, Nvidia's acquisition of ARM is destined to not stay in the calm before the storm.


A profound impact on Chinese companies

The most direct impact of the transaction will be that the United States will further consolidate its leading position in key semiconductors such as CPUs and GPUs, and control the industry's speak right.

Different from the ARM's business model, Nvidia sells GPU chips. In the early years, GPUs were mainly used in the PC-side graphics processing. After the third wave of AI artificial intelligence in 2015, GPUs assumed the demand for processing a large number of deep learning computing power. GPUs were widely used in data centers and diverted the functions of CPUs in the cloud, becoming the core hardware of the AI era.

ARM does not sell chips, and its business model is IP licensing. It licenses the core architecture of the chip to the chip manufacturers, who will develop them in accordance with the terms of the contract. More than 90% of the CPU chip architecture of mobile phone manufacturers comes from ARM's authorization, such as Apple, Qualcomm, Samsung, Huawei, MediaTek, etc. In addition, ARM also has some mobile GPUs and data center CPU businesses.

Once the acquisition is successful, the United States will have three trump cards of Nvidia (PC, data center GPU), Intel (PC, data center CPU), ARM (mobile terminal CPU), and become the absolute hegemony in the terminal of CPU, GPU, and even the PC and data center. The global industrial chain is becoming more fragmented and the technological gap is deepening.

In China, companies with chip design capabilities will be indirectly affected, such as Huawei (mobile phones and data centers), ZTE that need ARM's direct IP authorization, OPPO, Vivo, Xiaomi, OnePlus that use Qualcomm, MediaTek and Samsung chips.

The industry chain in China are nothing more than two points. On the one hand, whether ARM can continue to maintain neutrality, after all, obtaining IP licenses from competitors is highly uncertain. It may lead to ARM's customers to switch to other ecological camps to find alternatives. The reason why ARM has been able to attract a wide range of partners globally is that ARM does not have any competitive relationship with partners.

On the other hand, if Nvidia completes its acquisition of ARM, it is uncertain that whether ARM will be fully and directly controlled by the Committee on Foreign Investment in the United States (CFIUS) in the future.

ARM CEO Simon Segars said at the conference that "The majority of ARM's products come from outside the United States and are largely exempt from US export regulations. Having a U.S. parent company will not bring any change." The subtlety is that Nvidia CEO Jen-Hsun Huang did not make any comment.

People in the Chinese semiconductor industry are generally sceptical about this, they think that ARM is likely to become a new bargaining chip for the United States to counterbalance the development of China's technology industry.

More importantly, starting from the interests of Chinese and even global industry chain, to guard against giants building a moat for the next era, it will help balance the healthy development of the industry and create opportunities for other potential companies to overtake them.

For example, Qualcomm's acquisition of NXP. It took nearly two years and was worth $44 billion, higher than Nvidia's acquisition of ARM. After successfully passing the anti-monopoly approvals in eight countries, it was finally terminated in China, and Qualcomm had to abandon the acquisition. Qualcomm has built up high patent barriers in the 3G and 4G era, and with the 5G Internet of Everything, NXP's strengths in IoT will be essential if it wants to maintain its dominance in connecting different smart devices.

Thus, the acquisition of ARM is not a simple business transaction from any perspective, but a game of different interests. Taking a step back, it may take time to verify what real and substantial leap forward the acquisition of ARM can bring to Nvidia's own business.



In the era of IoT, can ARM help Nvidia "fulfill its dream"?

SoftBank acquired ARM for a record price of $31.4 billion in 2016. It is the huge network behind ARM that SoftBank chairman and CEO Masayoshi Son bet on. But whether it is financial returns, business growth, or IoT, ARM is far below Son's expectations.

In Jen-Hsun Huang's view, the same is true, "AI is the most powerful technical force in the current era, which has already created a new wave of computing. In the next few years, trillions of computers running AI will create a new Internet of Things, meanwhile, its scale is larger than the Internet of People.

In the view of some industry insiders, Nvidia's acquisition of ARM has more imagination because there is little crossover between the two business areas. For example, Forbes has imaged the possibilities of Nvidia and ARM, including a network data center combination of CPU, GPU and NPU, and smartphones and tablets based on GPU and NPU IP.

However, the "intersection" between Nvidia and ARM will first be reflected in the field of data centers and autonomous driving.

Nvidia has officially mentioned that to build a new global AI research center at ARM's Cambridge headquarters, it will invest in cutting-edge AI supercomputers equipped by ARM chips.

An industry analyst told GeekPark (ID: geekpark) that the essence of Nvidia's acquisition of ARM is actually for the sake of drinking milk, and the reality of whether to buy the whole ranch. This is a strategic significance for the business, but it's not necessary.

"ARM started with the RISC architecture and lacks advantage in the field of high-performance computing. Although Japan's Fujitsu won the supercomputer crown based on the ARM architecture, the declaration is more meaningful than practical. Nvidia does not necessarily need ARM's assistance in the field of high-performance computing. In addition, compared with Intel's X86 architecture, ARM still has a bi gap."

In any case, Nvidia's acquisition of ARM will be a key event in the history of semiconductors and a "variable" in the development of China's semiconductor industry and Nvidia's own business. Unlike Nvidia's acquisition of Mellanox, the acquisition of ARM will take much longer, and the public opinion environment Nvidia facing will also be more rigorous. 

This is an article from WeChat official accounts GeekPark (ID: geekpark), written by Zhao Chenxi, translated by Chris Yuan.