Nvidia Arm Deal under closer scrutiny by European Commission


With lingering concerns about the potential to stifle competition in the proposed acquisition of Arm by Nvidia for $ 40 billion, the European Commission (EC) opens an “in-depth investigation” into the case to give itself more time to review the potential transaction.

The EC announced its ruling on October 27 after conducting an earlier investigation which determined there were still questions that needed to be answered before the EC issued a ruling in the case.

“The commission is concerned that the merged entity has the ability and incentive to restrict the access of Nvidia’s competitors to Arm’s technology and that the proposed transaction could result in higher prices, less choice and reduced innovation. in the semiconductor industry, ”the agency said in a statement. A declaration.

“As a result of its preliminary investigation, the committee considers that Arm has significant market power in the licensing market for central processing unit (CPU) intellectual property for use in processor products, ”the statement continued. “Therefore, the committee is concerned that the merged entity has the ability to restrict or degrade access to Arm’s technology by vendors of processor products with which Nvidia may compete. [in the marketplace]. “

These concerns relate to hardware, including data center processors, smart grid interconnects (SmartNICs), semiconductors for automotive advanced driver assistance systems (ADAS), SoCs and other systems, according to the EC. The EC’s in-depth investigation will be conducted under the European Union’s Merger Regulation and the EC has said it expects to issue a ruling by March 15, 2022, 90 working days from of his last decision.

“Semiconductors are everywhere in the products and devices we use every day as well as in infrastructure such as data centers,” said EC executive vice president Margrethe Vestager, head of policy for competition, in a press release. “Although Arm and Nvidia do not compete directly, Arm’s IP is an important input in competing products from Nvidia, for example in data centers, automotive and the Internet of Things. (IoT). “

The group’s analysis shows that the acquisition of Arm by Nvidia could lead to restricted or degraded access to Arm’s intellectual property, with distorting effects in many markets where semiconductors are used ”, he added. said Vestager. “Our investigation aims to ensure that companies operating in Europe continue to have effective access to the technology necessary to produce advanced semiconductor products at competitive prices.”

The next EC investigation will examine the effects of the proposed acquisition to determine whether the group’s initial competition concerns in these markets are confirmed.

One of the main concerns of the commission is that Arm licensees may be reluctant to continue sharing commercially sensitive information with the merged entity as they compete with Nvidia, the statement continued. Another concern of the committee is that after a merger, Nvidia could refocus part of Arm’s R&D spending on the most profitable products for Nvidia downstream, to the detriment of players relying heavily on certain Arm’s IPs. in other areas, the agency said.

The commission said it will continue to work closely with similar competition authorities around the world as it continues its further in-depth investigation into the matter.

In a statement to EnterpriseAI, a spokesperson for Nvidia said the company “works closely with the European Commission throughout the regulatory process. We look forward to the opportunity to address their initial concerns and continue to demonstrate that the transaction will help accelerate Arm and boost competition and innovation, including in the EU.

A spokesperson for Arm declined to comment on regulatory matters and deferred comments to Nvidia.

Several IT analysts have reacted to the latest news from the EC with varying degrees of pessimism or optimism about the agency’s final decision.

Jack Gold, Analyst

“I have always said that the acquisition of Arm by Nvidia has real potential to negatively affect all Arm licensees, many of whom would be in direct competition with Nvidia in the graphics and AI space,” said Jack. E. Gold, president and senior analyst at J. Gold Associates, LLC. “Nvidia said it will not hamper Arm’s current business model and will freely license its technology as usual. But how would we know if Nvidia’s influence is driving R&D and engineering? ‘Arm in a particular direction in favor of Nvidia over Arm licensees? “

Such moves can be subtle or egregious, and leave no way to know for sure, Gold said. “So the EC is right – the result could lead to less competition as Arm is the engine of so many products and companies. I think Nvidia’s stated goal of acquiring Arm so that it can license its IP via Arm channels could be achieved without outright acquisition of Arm.

It’s also worth noting, Gold said, that some companies are already considering alternatives to Arm, such as RISC-V or the Open Compute Project, to prepare if the acquisition goes through and they lose access to it. the semiconductor IP on which they relied in the past. .

“But these alternatives are nowhere near as complete or have as many functional components as Arm, so it’s not a great solution for many current licensees, besides changing a complete architecture for a new one is a huge effort, ”Gold said. “And the fact that so many key chip companies, including Arm licensees, oppose this deal has given the EC review more momentum.”

Ultimately, Gold said, he still doesn’t see the merger happening. “My ultimate hypothesis is that, having come this far and with the increased scrutiny the EC brings to the agreement, it is

Patrick Moorhead, analyst

now a long way to go.

Another analyst, Patrick Moorhead, senior analyst at Moor Insights & Strategy, said the EC’s new in-depth investigation was no surprise at all, but it wasn’t the only potential obstacle to the deal.

“When the deal was announced, I thought China and the EU would be challenges,” Moorhead said. “I’m confident the deal will be done in the EU with some Nvidia concessions, but China is still a crapshoot.”

However, one analyst, Karl Freund, founder and senior analyst of Cambrian AI Research, said he believes the EC’s latest action is unnecessary in this case.

Karl Freund, analyst

“These concerns assume that the combined entity would be foolish enough to undermine Arm’s value by taking these steps,” Freund said. “That would make RISC-V play, which would actually stimulate competition. These concerns are downright stupid.

Nvidia announced its $ 40 billion acquisition offer for Arm in September 2020, which sparked a cascade of events. Several big tech companies, including Google, Microsoft and rival chipmaker Qualcomm, continued to vigorously oppose the deal, voicing repeated concerns about its negative effects on competition and prices.

But in June 2021, three other chip companies – Broadcom, Marvell and MediaTek – backed the acquisition and began publicly declaring that they viewed the move as a move that could ultimately benefit their own businesses.

Nvidia’s acquisition of Arm was put in place when Japanese tech investment firm Softbank, which bought Arm in July 2016 in a $ 32.25 billion all-cash deal, chose to sell the business after a cash drain since the first quarter of 2020. Softback had sought to sell assets to raise funds after the company’s earlier bets on the rise of connected devices fell short of their fruits. The company’s Vision Fund, its AI investment fund, reportedly suffered an annual loss of $ 13 billion in its fiscal year ending March 2020.

Acquiring Arm would solidify Nvidia’s position as a major player in the wireless and other markets as it consistently makes inroads into enterprise data centers. The graphics leader has released a stream of ever more powerful GPUs targeting machine learning and other AI workloads that now dominate enterprise data centers.

The proposed acquisition of Nvidia Arm has generated more interest this year due to the global shortage of chips and the increase in computational demands for AI, machine learning and other technologies in response to the COVID-19 pandemic, according to a recent Datanami article. Chip production slowdowns and component shortages caused by pandemic-related shutdowns around the world have contributed to the problems, putting pressure on a wide variety of chip-hungry industries.

In August, plans to acquire Arms from Nvidia met a major hurdle after a report from a UK regulator criticized the deal, saying it could “lead to a realistic prospect of a substantial decrease in competition ‘in the global chip industry.

The 10-page summary of the report, which was released by the UK Competition and Markets Authority (CMA), was handed over to UK Digital Secretary Oliver Dowden in response to his April order for an investigation phase one on the UK-based arm’s acquisition project. The Dowden order specified that the CMA would assess the agreement on a competitive basis and report to the government. The summary, which was released on August 20, is being provided by the government ahead of the CMA’s full report.

“The AMC has found significant competition concerns due to the effect of [the proposed acquisition] in providing processors, interconnect products, GPUs and SoCs to multiple global markets, spanning data center, Internet of Things, automotive and game console applications, ”the report said.

According to the report, Dowden, who is the digital secretary of the UK’s Department for Digital, Culture, Media and Sport, will now decide whether to order a more in-depth phase two investigation by the CMA into these concerns. There is no period or deadline set for it to make such an order, “but it must take into account the need to make a decision as soon as reasonably possible to reduce uncertainty.”

The UK government has also separately considered the national security implications of the transaction, according to the summary.

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