Nvidia has made it official that it plans to acquire Arm for US$40 billion on Sunday.
The deal will be the biggest M&A in the semiconductor industry to date. However, the deal is still pending approval from authorities in various countries including China.
SoftBank and Vision Fund currently hold a 75% stake and 25% stake of Arm, respectively.
Nvidia will pay US$12 billion in cash and US$21.5 billion in its own stock. It will pay an additional US$5 billion under an earn-out clause.
Nvidia will also issue US$1.5 billion in equity to Arm employees.
Arm’s Internet of Things service group isn’t included in the deal.
From SoftBank to Nvidia
Arm is a semiconductor IP company founded in Cambridge in the UK in 1990. It receives license fees for its IPs that are used to make CPU and GPU by companies such as Samsung Electronics, Qualcomm and Apple.
180 billion semiconductors with Arm IPs have been shipped so far.
The company posted US$1.898 billion in sales in 2019.
SoftBank bought Arm for US$32 billion back in 2016. The Japanese tech giant is seeing huge losses from its subsidiaries such as Uber and WeWork following the COVID-19 pandemic. It invested US$9 billion in WeWork but failed to float the company that is now valued under US$3 billion.
Cash-strapped SoftBank is expected to secure US$8 billion in profit from selling Arm.
Nvidia specializes in GPU. It is a fast-growing company that invested in high performance computing technology for AI, data center and autonomous vehicle applications. The company will secure CPU architecture from its purchase of Arm.
This will make it level with Intel which also has its own CPU architecture.
Nvidia has said it plans to develop a AI super computer that uses Arm-based CPU.
However, it remains to be seen whether Arm can continue its IP business once it is bought by Nvidia. SiFive is offering an alternative open source RISC-V IP for chip design.
China’s anti-trust authority remains an obstacle
The deal needs approval from anti-trust authorities in the UK, China, European Union and the US. Nvidia said it expects the deal to be completed in 18 months.
Most fabless companies that use Arm Ips for their chips are expected to protest against the deal.
China will be also be a wildcard as the company is embroiled in a trade dispute with the US.
Arm China was formed in 2018 and 51% stake of the company is owned by China. Arm HQ fired Arm China CEO Allen Woo. The company claimed that the Chinese government was stealing its technology. Arm China’s CEO has refused to leave.
China has previously rejected Qualcomm’s acquisition of NXP, which broke the deal. In the same year, Broadcom’s planned acquisition of Qualcomm was rejected by US President Donald Trump.
In 2016, Lam Research attempts to buy KLA failed as the US raised anti-trust concerns over the deal. The two companies are the world’s third and fifth largest semiconductor testing equipment makers, respectively. In 2017, the US also rejected the merger of Applied Materials and Tokyo Electron for the same reason.
Biggest deal in semiconductor industry
Nvidia’s US$40 billion deal to by Arm will be the biggest ever in the semiconductor industry if it succeeds. The biggest so far has been Avago’s US$37 billion for Broadcom back in 2015. SoftBank’s US$32 billion for Arm in 2016 comes second, followed by Analog Device’s US$24.75 billion for Maxim Integrated comes third. This is followed by Western Digital’s US$19 billion for SanDisk in 2015.
In tech, the biggest deal so far has been Dell’s US$60 billion fro EMC back in 2015.