Regulatory review of Nvidia’s $40 billion proposed purchase of Arm will become Nvidia’s biggest obstacle in sealing the mega-deal.
Regulators for the U.S., China, U.K. and European Union all have to give a thumbs-up to the deal, a process that could last 18 months. Already, U.S. trade restrictions prevent U.S. sales of chips and software to many Chinese companies, including Huawei, over U.S. national security concerns.
What if Arm under Nvidia were considered by regulators to be a U.S. company subject to such trade restrictions?
It’s not an idle concern.
Hermann Hauser, a founder of Arm, has written an open letter saying he was “extremely concerned” that the deal could negatively impact the U.K.’s economic sovereignty independent of the U.S. and U.S. interests. He’s also worried the deal will hurt jobs in the UK and the basic business model of Arm
Nvidia says that Arm will remain in Cambridge, be enhanced with an AI research lab, and will keep its open licensing agreements with chipmakers and others. But what is Nvidia saying—that Arm will be truly independent from Nvidia? And would that in effect mean Nvidia is trying to side-step all the U.S. trade restrictions on sales to Chinese companies? How can a U.S. company trade its stock under a single exchange without including revenues from entities under its direction?
All of these are fair questions that Fierce Electronics has asked to various parties. Nvidia, to its credit, has said it is considering some of these questions, but has not responded. Nvidia will have to offer some kind of response in months down the line when regulators ask them or when competitors pose such questions in lawsuits or in their recommendations to regulators.
“We believe there will be very strong opposition to the deal both from Arm licensees and Nvidia competitors, and regulators will ask them for input,” said Kevin Anderson, an analyst at Omdia, in an email to Fierce Electronics. “Getting regulatory approval in the U.K. and China will be the most difficult. Based on what happened with Qualcomm and NXP, I give this a less than 50% chance of completion.”
“If Arm is owned by Nvidia, future sales would be subject to U.S. export regulations,” Anderson added. “Many Chinese companies use Arm IP. In their announcement, Nvidia said they that they expect to invest in AI and supercomputing research, which are two areas that the U.S. could consider national security sensitive.”
Intel, an Arm licensee and a competitor to Nvidia, told Fierce Electronics it isn’t yet ready to respond yet to the deal or its impact on Intel.
“We’ll probably start hearing more from these competitors once the regulators start their investigations of the deal,” said Jack Gold, an analyst at J. Gold Associaties.
“The trade embargo question is a big risk for this deal,” Gold added. “If the U.S. government steps in and considers Arm a U.S. company after acquisition, there could be a major issue. I also think the Chinese will have a lot of trouble digesting this deal and approving it. So, I don’t think at this point we can consider the acquisition a sure thing.”
While Gold is not a legal expert, he said Nvidia might be able to make Arm a wholly owned subsidiary instead of absorbing them into Nvidia. “I expect there are some ways to make it seem as if Arm is still a U.K.-based independent subsidiary that the U.S. government would leave alone, but you never know,” he added.