How Nvidia’s potential acquisition of SoftBank-owned Arm could shake out

Nvidia has reportedly approached SoftBank to discuss acquiring UK-based Arm, in what would likely be the most expensive deal to date within the semiconductor industry, per Bloomberg. Though SoftBank CEO Masayoshi Son has touted Arm as “the center of the center” of his sprawling investment portfolio, the Japanese tech conglomerate faces pressure from activist investor Elliott Management to streamline its operations.

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Besides discussing a deal with Nvidia, SoftBank reportedly reached out to Apple about a potential Arm acquisition, but the company wasn’t interested. Arm could also pursue an initial public offering in 2021, which would garner an estimated $44 billion valuation, according to New Street Research cited by the Washington Post. SoftBank originally purchased Arm in 2016 for $31.4 billion.

Here are three key points to understand about this potential deal: 

  • Nvidia and Arm have distinct business models. The key difference resides in where the companies operate within the value chain: Arm generates intellectual property (IP) through research, which it then sells to other companies to use, whereas Nvidia largely designs its own chips and sells them directly to consumers and enterprises. In recent years, Nvidia has capitalized on the proliferation of AI across cloud computingautonomous vehicles, and industrial robotics to expand its target market. Just this month, Nvidia surpassed Intel to become the most valuable semiconductor provider. Arm, by contrast, licenses its semiconductor designs to companies including Nvidia, Apple, Qualcomm, and Samsung. 
  • Because of this difference in business models, it would be challenging for Nvidia to reap benefits from an acquisition without disturbing Arm’s partner ecosystem. Nvidia would be able to work more closely with Arm following an acquisition and get a leg up on integrating the latest Arm IP in its proprietary chip designs. But this strategy risks damaging Arm’s relationship with enterprise clients such as Apple, should they perceive Arm giving an unfair edge to Nvidia. This could also create issues in the other direction, whereby Nvidia would need to protect its proprietary IP from Arm, since Nvidia wouldn’t want to indirectly license IP to competitors. A firewall between the two companies could be implemented to control the extent to which they collaborate, but that would limit the upside of the acquisition in the first place.
  • If Nvidia decides to proceed with an acquisition attempt, it would likely be met with intense regulatory scrutiny. According to the Bloomberg report, SoftBank was seen as a relatively neutral buyer for Arm when it made the acquisition in 2016, which helped the deal pass regulatory scrutiny. Many of Nvidia’s competitors license Arm architecture, and they may oppose the potential acquisition on these grounds.

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