Softbank Group, which has the leading investment vehicle Vision Fund, is about to sell ARM holdings to Nvidia Corp. Selling British chip designing company in $40 billion to a GPU company is almost near a deal. Most people may or may not know what those companies are doing (except investors or tech-savvy geeks) even though they are using them unconsciously. Wall Street Journal reporter Asa Fitch and Stu Woo kindly explains about them.
ARM Holdings
ARM plays the valuable key role in semiconductor sectors, which WSJ calls "world's most important behind-the-scenes chip companies". It provides basic blueprints of the semiconductor by designing and licensing, and dominates more than 95% of world's smartphone.
Cambridge-based firm, Arm was founded in 1990 in collaboration with Apple Inc. and the Acorn Computer Group. It took a different strategy from its rival Intel. Arm focused on designing rather than energy consumption. Arm was in a position to take advantage of the 2000s smartphone revolution, as Apple, Samsung and other device manufacturers were looking for chips that would take a sip instead of wasting battery life. Softbank Group acquired 25% stake (32 U.S billion) of ARM, indicating the technology can lift the future of IoT.
Nvidia Corp
Nvidia is famous for its graphic chips especially in video-games. During the pandemic, as console games such as Nintendo Switch was hot in demand, the GPU was widely used in it. Nvidia does not only concentrate on graphic chips for games but also for the data centers as the chip plays critical role in AI calculation as the automation industry sparks up. Nvidia has the highest market capital (300 billion) among U.S. semiconductor firms, outstanding Intel.
Nvidia was founded in 1993, just 3 years after ARM's appearance and is located in Santa Clara, California. Its vision for the future demand of graphic games and multimedia content from consumers was firm and stubborn as personal computers have been supplied more widely. Jensen Huang is the CEO and co-founder of the company, who previously worked in AMD, which is now rival.
Acquisition
The pressure from shareholders presumably Elliot Management has made up Softbank's mind to sell its asset that is flagging its stock price. To shore up its stocks, Masayoshi Son announced to sell $40 billion of ARM, which made the share more than 20% this year.
For Nvidia, the deal could grant a dominant role of its lucrative business on providing chips to the smartphone companies such as Apple. It could make Nvidia more powerful company against its rival competitor such as Intel or AMD as they try to adapt Arm desings in servers and personal computers. Apple has transferred its CPU from Intel to Arm based technology to make Mac more efficient.
"Nvidia will pay $21.5 billion in stock and $12 billion in cash. SoftBank may also receive up to $5 billion in cash or stock subject to Arm hitting financial-performance targets. Nvidia will also issue $1.5 billion in stock to Arm employees", reports WSJ.
Threats
Since the acquisition of Arm Holdings is the biggest ever, there are 3 risks that Nvidia need to bear in mind.
1. Battlefield between U.S. and China over the dominance of techno-hegemony can lead into the trouble of the whole semiconductor industry. With these in regards, regulators in both parties of the country need to agree on the sign off completely. In the past, Broadcom's acquisition over Qualcomm has been nullified as Trump administration fears geopolitical considerations.
2. Job losses can be another reasons that some politicians in the U.K worry about. When SoftBank bought Arm, it guaranteed to grow jobs in Britain. Labour Party warned recently that Nvidia's acquisition of Arm could lead for unemployment as the pledge will also be invalidated.
3. Arm has been in partnership with many customers in neutral position. However, Nvidia's acquisition can raise the concern from Arm's customers that it can exploit using monopoly rights to the existing clients.
Source WSJ NYT FT
https://www.nytimes.com/2020/09/13/technology/nvidia-arm-softbank.html
https://www.ft.com/content/6bfe40a5-2426-4743-98cd-6fed9dd01b98
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