The Federal Trade Commission sued to block Nvidia’s $40 billion purchase of Arm from SoftBank, citing antitrust concerns.
“The proposed vertical deal would give one of the largest chip companies control over the computing technology and designs that rival firms rely on to develop their own competing chips,” the FTC said in its announcement late Thursday.
“This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals,” added FTC Bureau of Competition Director Holly Vedova. She said the lawsuit by the FTC should signal that the commission “will act aggressively to protect our critical infrastructure markets from illegal vertical mergers that have far-reaching and damaging effects on future innovations.”
The complaint names Nvidia, Arm and Arm owner Softbank Group. An administrative trial on the matters will begin on Aug. 9. FTC staff cooperated with agencies in the European Union, United Kingdom, Japan and South Korea in developing the complaint.
It alleges the combined firm would have the “means and incentive to stifle innovative next-generation technologies.”
It cites three worldwide markets where Nvidia’s acquisition would harm competition: ADAS, DPU SmartNICs for data center server security and Arm-based CPUs for cloud providers.
In addition, the FTC complaint says the acquisition will harm competition by giving Nvidia access to the competitively sensitive information of Arm’s licensees, some that are Nvidia’s rivals.
Roger Entner, an industry analyst at Recon Analytics, has long opposed the purchase on some of the same grounds cited by the FTC.
“It doesn’t look good” for the deal, he said, noting opposition by regulators in the U.S. and elsewhere. “Many hounds are a fox’s death.”
SoftBank will be hurt the most if the deal falls through and could have been much better off if it had floated an initial public offering of Arm two years ago, Entner said.
“Nvidia will be fine” if the deal collapses, Entner added. He said Nvidia probably won’t fight the FTC complaint, adding that the acquisition is “not that critical to Nvidia.”
“It would be nice for Nvidia to have Arm, but when we look at Nvidia that company is so strong and does such fantastic stuff,” Entner added. “ It would have been nice, but it doesn’t look like the acquisition is happening.”
In response to the complaint, an Nvidia spokesman late Thursday said the company will continue to work with regulators in hopes of having the deal approved.
"As we move into this next step in the FTC process, we will continue to work to demonstrate that this transaction will benefit the industry and promote competition," the spokesman said.
"Nvidia will invest in Arm’s R&D, accelerate its roadmaps, and expand its offerings in ways that boost competition, create more opportunities for all Arm licensees and expand the Arm ecosystem. Nvidia is committed to preserving Arm’s open licensing model and ensuring that its IP is available to all interested licensees, current and future."
In a recent earnings conference call, CFO Colette Kress reasserted the value of Nvidia’s plan to purchase Arm despite concerns raised by some regulators until that point on Nov. 17. “We continue to believe in the acquisition,” she said at the time. She added that Nvidia had “discussed remedies” with the FTC, but didn’t give any specifics.
Nvidia shares rose slightly after market close, reaching $323.98. Shares were up more than 2% for the entire day.
RELATED: Nvidia scores record quarter on 55% improved sales for data center chips