NVIDIA Corporation
NVDA
has abandoned the purchase of Arm Limited from the Japanese multinational conglomerate holding company, Softbank Group Corporation, Reuters reported on Monday late night citing anonymous sources familiar with the matter.
NVIDIA on Sep 13, 2020, announced entering into an agreement to acquire Arm from its existing owner, Softbank, in a cash-and-stock deal worth $40 billion. NVIDIA aimed at integrating its AI computing platform with Arm’s expertise in a bid to create a premier computing entity. It had previously stated that the transaction would be immediately accretive to non-GAAP gross margin and non-GAAP earnings per share after its closure.
However, the deal has been facing regulatory opposition from the beginning.
NVIDIA Corporation Price and Consensus
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NVIDIA Corporation Quote
Deal Faces Regulatory Opposition
Arm sells semiconductor designs. The company is well-known for its ARM Processors or Central Processing Units. Additionally, it offers development tools that deliver intelligence in applications, including servers, sensors, personal computers, smartphones, enterprise infrastructure and the Internet of Things.
The England-based chip designer, often referred to as the Switzerland of the semiconductor industry, plays a neutral role in the space. Hence, the deal is feared to block this chip access neutrality and could favor the U.S. owner over its rivals.
As a result, the deal has caught the attention of competition regulatory bodies of several countries. In December 2021, the U.S. Federal Trade Commission (FTC) sued to block the transaction over competition concerns. FTC, in its lawsuit, stated that the proposed acquisition would provide NVDA control over computing technology and designs that rival firms rely on to develop their products.
In November 2021, the British government ordered an in-depth – Phase Two – investigation of the transaction over competition and national security concerns. The U.K.’s Competition and Markets Authority has been given 24 weeks to deliver a final report, with a provision to extend the time frame by eight weeks. Based on the reports filed by the agency, the U.K. government could block the deal on one or both grounds, clear it on both grounds or approve it with certain conditions.
The Europe and China regulatory bodies have also launched lengthy investigations over whether the sale of Arm to NVIDIA could impact competition and disrupt the global chip supply chain.
Faces Opposition From Tech Rivals
Several tech companies, including
Qualcomm
QCOM
,
Alphabet
’s
GOOGL
Google and
Microsoft
MSFT
, have opposed the transaction and asked the U.S. antitrust regulators to intervene.
According to these firms, the acquisition would provide NVIDIA control over Arm’s intellectual property (IP) rights, which license chip designs and related software to those willing to pay for the same, including rivals to one another.
Qualcomm has been more vocal in opposing the deal. Arm supplies IP rights to the company whose chip designs are found in most smartphones worldwide. Qualcomm is worried that following the acquisition, NVIDIA could limit its access to Arm’s chip licenses, which have built its mobile chip empire using the latter’s designs.
Qualcomm has also stated that it is open to investing in Arm if the regulatory bodies block NVIDIA’s deal. Arm’s other customers, Alphabet and Microsoft, have also voiced similar concerns that NVDA might limit access to Arm’s technologies or raise prices.
Conclusion
As the Arm acquisition now appears unlikely, this could hurt NVIDIA’s long-term strategic plan of expanding across the fast-growing server, cloud, AI and Internet of Things market. The takeover would also help it in becoming the largest semiconductor company in the United States.
However, one should note that NVIDIA has reached its status because of its sustained focus on innovation and continuous investments in research & developments. Starting with making 3D graphics processors for video games, the company has expanded into servers and other markets.
NVIDIA graphic processors are gaining rapid traction with the proliferation of AI. The increasing use of AI tools in the data center, automotive, healthcare and manufacturing industries is expected to drive demand for graphic processors in the long haul.
Despite the back-to-back hurdles in its Arm acquisition deal, NVDA stock has gained 73.4% in the last 12 months, outpacing the Zacks
Computer and Technology
sector’s increase of 2.1%.
Currently, NVDA carries a Zacks Rank #2 (Buy), while QCOM sports a Zacks Rank #1 (Strong Buy). GOOGL and MSFT each carry a Zacks Rank #3 (Hold) at present. You can see
the complete list of today’s Zacks #1 Rank stocks here
.
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