NVIDIA to Acquire Arm for $40 Billion, Creating World’s Premier Computing Company for the Age of AI

[Dark Sorrow]

NVIDIA and SoftBank Group Corp. (SBG) today announced a definitive agreement under which NVIDIA will acquire Arm Limited from SBG and the SoftBank Vision Fund (together, “SoftBank”) in a transaction valued at $40 billion. The transaction is expected to be immediately accretive to NVIDIA’s non-GAAP gross margin and non-GAAP earnings per share.


The combination brings together NVIDIA’s leading AI computing platform with Arm’s vast ecosystem to create the premier computing company for the age of artificial intelligence, accelerating innovation while expanding into large, high-growth markets. SoftBank will remain committed to Arm’s long-term success through its ownership stake in NVIDIA, expected to be under 10 percent.


“AI is the most powerful technology force of our time and has launched a new wave of computing,” said Jensen Huang, founder and CEO of NVIDIA. “In the years ahead, trillions of computers running AI will create a new internet-of-things that is thousands of times larger than today’s internet-of-people. Our combination will create a company fabulously positioned for the age of AI.


“Simon Segars and his team at Arm have built an extraordinary company that is contributing to nearly every technology market in the world. Uniting NVIDIA’s AI computing capabilities with the vast ecosystem of Arm’s CPU, we can advance computing from the cloud, smartphones, PCs, self-driving cars and robotics, to edge IoT, and expand AI computing to every corner of the globe.


“This combination has tremendous benefits for both companies, our customers, and the industry. For Arm’s ecosystem, the combination will turbocharge Arm’s R&D capacity and expand its IP portfolio with NVIDIA’s world-leading GPU and AI technology.


“Arm will remain headquartered in Cambridge. We will expand on this great site and build a world-class AI research facility, supporting developments in healthcare, life sciences, robotics, self-driving cars and other fields. And, to attract researchers and scientists from the U.K. and around the world to conduct groundbreaking work, NVIDIA will build a state-of-the-art AI supercomputer, powered by Arm CPUs. Arm Cambridge will be a world-class technology center.”


“NVIDIA is the perfect partner for Arm,” said Masayoshi Son, chairman and CEO of SBG. “Since acquiring Arm, we have honored our commitments and invested heavily in people, technology and R&D, thereby expanding the business into new areas with high growth potential. Joining forces with a world leader in technology innovation creates new and exciting opportunities for Arm. This is a compelling combination that projects Arm, Cambridge and the U.K. to the forefront of some of the most exciting technological innovations of our time and is why SoftBank is excited to invest in Arm’s long-term success as a major shareholder in NVIDIA. We look forward to supporting the continued success of the combined business.”


“Arm and NVIDIA share a vision and passion that ubiquitous, energy-efficient computing will help address the world’s most pressing issues from climate change to healthcare, from agriculture to education,” said Simon Segars, CEO of Arm. “Delivering on this vision requires new approaches to hardware and software and a long-term commitment to research and development. By bringing together the technical strengths of our two companies we can accelerate our progress and create new solutions that will enable a global ecosystem of innovators. My management team and I are excited to be joining NVIDIA so we can write this next chapter together.”


Commitment to Arm and the UK
As part of NVIDIA, Arm will continue to operate its open-licensing model while maintaining the global customer neutrality that has been foundational to its success, with 180 billion chips shipped to-date by its licensees. Arm partners will also benefit from both companies’ offerings, including NVIDIA’s numerous innovations.


SoftBank and Arm are fully committed to satisfying the undertakings made by SoftBank when it acquired Arm in 2016, which are scheduled to complete in September 2021. Following the closing of the transaction, NVIDIA intends to retain the name and strong brand identity of Arm and expand its base in Cambridge. Arm’s intellectual property will remain registered in the U.K.


NVIDIA will build on Arm’s R&D presence in the U.K., establishing a new global center of excellence in AI research at Arm’s Cambridge campus. NVIDIA will invest in a state-of-the-art, Arm-powered AI supercomputer, training facilities for developers and a startup incubator, which will attract world-class research talent and create a platform for innovation and industry partnerships in fields such as healthcare, robotics and self-driving cars.


Additional Transaction Details
Under the terms of the transaction, which has been approved by the boards of directors of NVIDIA, SBG and Arm, NVIDIA will pay to SoftBank a total of $21.5 billion in NVIDIA common stock and $12 billion in cash, which includes $2 billion payable at signing. The number of NVIDIA shares to be issued at closing is 44.3 million, determined using the average closing price of NVIDIA common stock for the last 30 trading days. Additionally, SoftBank may receive up to $5 billion in cash or common stock under an earn-out construct, subject to satisfaction of specific financial performance targets by Arm.


NVIDIA will also issue $1.5 billion in equity to Arm employees.


NVIDIA intends to finance the cash portion of the transaction with balance sheet cash. The transaction does not include Arm’s IoT Services Group.


The proposed transaction is subject to customary closing conditions, including the receipt of regulatory approvals for the U.K., China, the European Union and the United States. Completion of the transaction is expected to take place in approximately 18 months.

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[Dark Sorrow]

Following a number of rumors and leaks, NVIDIA this evening announced that it is buying Arm Limited for $40 billion. The cash and stock deal will see NVIDIA buy the semiconductor and IP design firm from SoftBank and its associated SoftBank Vision Fund, with NVIDIA taking an eye towards expanding Arm’s IP licensing business while also using Arm’s technology to further pierce into the datacenter market. The deal is just being formally announced today and will likely not close for some time, as it is expected to be required to clear multiple regulatory hurdles in the UK, US, China, and other governments across the globe.


The groundbreaking deal will see NVIDIA take over Arm Limited from SoftBank, who previously acquired the then-independent Arm in 2016 for $32 billion. At the time, SoftBank acquired Arm primarily as an investment vehicle, expecting the successful company to continue to grow as the number of chips shipped on the Arm architecture continued to explode. However, the investment firm has been under pressure in recent months as some of its other investments have taken big hits – particularly WeWork and Uber – and while SoftBank isn’t officially commenting on why it’s selling Arm after all of this time, there’s ample reason to believe that the firm is selling off one of its more valuable assets in order to shore up its balance sheets.


The $40 billion transaction means that SoftBank will come out ahead on their investment, but only barely – their Arm investment has significantly underperformed relative to the broader technology industry. The deal will see SoftBank receive $12 billion in cash, along with $21.5 billion in NVIDIA stock. That transaction will give SoftBank a relatively sizable ownership stake in NVIDIA, though according to the companies the total stake is expected to be under 10 percent. Finally, the remaining $6.5B valuation of the deal will come from a further $1.5B in equity that NVIDIA will be paying out to Arm employees, as well as a $5B “earn-out” payment to be paid if Arm meets certain financial targets.

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As for NVIDIA, the Arm acquisition marks their largest acquisition to date, easily eclipsing the Mellanox acquisition that closed just a short few months ago. Over the last half-decade NVIDIA has undergone significant growth – both in regards to revenue and market capitalization – thanks in big part to NVIDIA’s newfound success in the server and datacenter market with their deep learning accelerators. While the company is well off of its 52-week high that it set earlier this month, NVIDIA now has a sizable $330B market cap that they are leveraging to make this deal possible.


And according to the company, it’s that success in the server market that is driving their interest in and plans for Arm. NVIDIA expects the server market to remain a high-growth opportunity, and that by acquiring Arm they can leverage Arm’s recent success with Neoverse and other server products to reach an even bigger chunk of that market.

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To be sure, NVIDIA isn’t announcing any specific hardware plans today – the deal is easily still a year and a half off from closing – but NVIDIA has made it clear that following their success in the GPU/accelerator and networking markets, they see Arm as the perfect complement to their current product lineup, giving them a capable CPU architecture to round-out their technology portfolio. Even with Arm, NVIDIA will not be capable of complete vertical integration, but while the company today still has to rely on third-party vendors (e.g. AMD and Intel) for some of the most important silicon that goes into servers incorporating their accelerators, with an Arm-based server CPU, NVIDIA can offer a nearly complete package on its own.

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Of course, Arm is more than just a server CPU designer; the company has its fingers in everything from toasters to supercomputers thanks to its very broad range of IP, and any discussion about acquiring Arm has to include what happens to those businesses. Arm’s core business is licensing IP, and NVIDIA is telling the public (and partners) that this won’t change – that the company will continue to license out IP to other companies. The rationale for this is multifaceted – NVIDIA needs to win over everyone from regulators to customers to investors – but at the end of the day the company is in no position to compete with a lot of Arm’s customers, nor would they want to. Even in the server space NVIDIA couldn’t hope to address everything from microservers to supercomputers, never mind embedded controllers and smartphones. So NVIDIA is taking a complementary approach to the acquisition, using Arm’s server technology to augment their own, all the while continuing to license out IP.


In fact, the company is looking at growing the amount of IP that Arm licenses by including IP currently held by NVIDIA; technologies such as GPUs, AI accelerators, and network processors. It’s an idea that NVIDIA has played around with once before without much success, but Arm comes with a much better business model and much more experience in licensing than NVIIDA ever had. Just what this expansion entails remains to be seen, but the obvious routes include licensing out GeForce graphics IP for use in SoCs (potentially replacing Arm’s Mali offerings), as well as licensing out bits and pieces of NVIDIA’s tensor core and InfiniBand technologies.

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Still, NVIDIA knows that they face an uphill battle in convincing Arm’s traditional customers that NVIDIA has their best interests at heart. The Arm deal is less than desirable for the industry as a whole, as Arm has traditionally only sold IP and related core designs, remaining fully divorced from full-scale chip design and sales. However with SoftBank seemingly set on selling Arm, there are few companies in a position to buy Arm, and even fewer that would be willing to take it on-board as a long-term investment. Ultimately, Arm being acquired by a chipmaker makes for strange bedfellows all around, and it falls on NVIDIA to convince customers that their acquisition of Arm will help the ecosystem by combining the companies engineering resources, and that they are earnest about continuing to design and sell top-shelf IP that other companies – even NVIDIA’s competitors – will get reasonable access to.

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The other (and perhaps more immediate) challenge for NVIDIA is convincing regulators across the globe to approve the deal. NVIDIA is pitching the deal as being complementary, combining two companies that otherwise have minimal overlap. None the less, minimal is not the same as “none”, and besides the immediate and obvious overlap with Mali and GeForce GPU technologies, regulators will no doubt take a great deal of interest in the future of IP licensing. The smartphone revolution of the past decade and a half has been built on top of Arm architectures – never mind the billions of devices with Arm-based microcontrollers – so many parties have a vested interest in keeping that going.


To that end, while NVIDIA is just starting discussions with regulators – the deal was secret and not being discussed with partners nor regulators until this evening – the company is already making concessions and guarantees to the British government to get its approval. This includes committing to keeping Arm headquartered in Cambridge, and continuing to do a significant amount of their engineering work there. The company is also announcing that they will be building one of their AI “centers of excellence” in Cambridge. Besides providing an environment for cutting-edge AI research and training, NVIDIA will be building an Arm & NVIDIA-powered supercomputer at the site. While specific plans for the supercomputer are not being announced, the company recently finished building the world’s 7th-fastest supercomputer, Selene, using its DGX Pod infrastructure, so NVIDIA has significant capabilities here.


Otherwise, no such overtures have been made to the US or China, however the situations in those countries are very different since they are not Arm’s traditional home. What (if anything) NVIDIA will need to do to sell regulators in those countries remains to be seen, but it’s worth noting that nothing about this deal resolves the current export impasse with China; even after the deal closes, Arm will still face the same restricts in exporting its technology to China.

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Finally, while this deal will see NVIDIA buying Arm wholesale, the two companies have confirmed that Arm’s ongoing efforts to sell off its IoT Services Group will continue. As a non-IP business NVIDIA has no interest in it, and as a result it will still be spun-off.


Ultimately, the Arm deal will be a significant shift in the industry, one far bigger than the $40 billion price tag indicates. In one form or another, Arm and its IP are at the heart of billions of chips sold every year, a reach that few other companies can match. For NVIDIA, acquiring Arm will cement their position as a top-tier chip designer, all the while giving them an even larger technology portfolio to go after the server market, and new opportunities to sell IP to other vendors. But true success will likely hinge on how well NVIDIA can court the rest of the technology industry: Arm’s reach is only as big as its customers, and so it’s up to NVIDIA to convince it’s customers that they can still count on Arm’s neutrality even after the change in ownership.

 

[Dark Sorrow]

NVIDIA's $40 Billion Takeover of Arm Spells Trouble for Intel and AMD


NVIDIA (NASDAQ:NVDA) this week agreed to buy chip designer Arm Holdings from SoftBank Group (OTC:SFTB.Y) in a deal worth up to $40 billion. The deal won't include Arm's Internet of Things (IoT) service group, which will be spun off into new units within SoftBank.
NVIDIA will initially pay SoftBank $21.5 billion in stock and $12 billion in cash. NVIDIA will issue an additional $1.5 billion in shares to Arm's employees, then pay up to $5 billion in cash or common stock to SoftBank if Arm achieves certain financial targets.
The deal has been approved by the boards of directors at NVIDIA, SoftBank Group, and Arm, and is expected to close within 18 months. NVIDIA expects the takeover to be "immediately accretive" to its non-GAAP gross margin and EPS.
The deal isn't surprising, since the rumors had been circulating since late June, but it's still a game-changing deal that could significantly expand NVIDIA's business beyond GPUs and threaten its rival chipmakers Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD).

Image source: Getty Images.
What does Arm Holdings do?


Arm's low-power chip designs are found in over 95% of the world's smartphones, but the company doesn't produce any chips on its own. Instead, it licenses its designs to other chipmakers, including NVIDIA, Qualcomm (NASDAQ:QCOM), and Apple (NASDAQ:AAPL), and collects royalties and licensing fees.
Arm's revenue rose 2% to 206.7 billion yen ($1.94 billion) in fiscal 2019, which ended on March 31, but it posted a net loss of 42.8 billion yen ($400 million), compared to a profit of 134 billion yen ($1.26 billion) a year earlier. Excluding a one-time gain from setting a joint venture in China in 2018, Arm would have remained unprofitable over the past three years, due to slower smartphone sales, the trade war, and COVID-19 disruptions.
Why did NVIDIA buy Arm?
Arm's recent growth has been weak, but integrating its operations with NVIDIA's could eliminate redundancies, cut costs, and boost its profits. Integrating Arm's full business would boost NVIDIA's annual revenue by over 10%, and its expectation for the deal to "immediately" boost its earnings suggests that sweeping layoffs are right around the corner.

Image source: Getty Images.
But afterward, NVIDIA will start earning ARM's royalties and licensing fees from rivals like Qualcomm, which previously drove its ARM-based Tegra CPUs out of the mobile chipset market with its Snapdragon SoCs. Much of Qualcomm's past success in the mobile market can arguably be attributed to its controversial practice of bundling SoCs with essential wireless licenses.
NVIDIA might implement a similar strategy by bundling its Tegra CPUs, which generated 13% of its revenue last year, with Arm's licenses. Since NVIDIA would no longer need to pay licensing fees to Arm, it could also sell its ARM-based chips at lower prices than competitors like Qualcomm.
That aggressive strategy could lock in Tegra's core customers across the automotive, robotics, drone, and gaming console markets, and potentially support its return to the mobile market or Tegra's expansion into data centers (which NVIDIA currently serves with its high-end GPUs).
However, NVIDIA can't simply cut Qualcomm, Apple, or other chipmakers off from Arm's licenses to sell its first-party chips for three reasons: Those companies are all locked into multi-year contracts with Arm; abruptly cutting them all off would inevitably spark lawsuits and antitrust probes; and Arm's revenue would dry up.

Why should Intel and AMD pay attention?
Intel and AMD both primarily sell x86 CPUs, which are generally more powerful but less power-efficient than Arm-based CPUs. That's why Intel and AMD hold a duopoly in the PC CPU market, while Intel's Xeon CPUs dominate the high-end data center market.
However, Arm-based chipmakers, especially Qualcomm, are gradually making inroads in the PC and data center markets with more powerful chipsets. Microsoft has also been embracing that shift with ARM-based versions of Windows.
NVIDIA's takeover of Arm could accelerate those efforts with higher-end chip designs for PCs and servers. It could build new Tegra CPUs based on those designs, then bundle them with its market-leading GPUs -- which are often used to run high-end games on PCs and process AI tasks in data centers.
If that happens, Intel's efforts to launch its own discrete GPU, the Xe, could fall flat. Moreover, Intel's PC and data center CPU businesses, which are already under pressure from its ongoing chip shortage and a delay of its 7nm chips, could need to counter AMD and NVIDIA at the same time.
AMD, which already competes with NVIDIA in the GPU market, could also be threatened by NVIDIA's moves into the ARM-based CPU space. AMD has been gaining ground against Intel in the desktop and notebooks markets, but the arrival of new power-efficient Tegra CPUs for notebooks bundled with mobile GeForce GPUs could throttle AMD's progress.
The bottom line
NVIDIA's takeover of Arm will enable it to earn licensing fees for nearly every smartphone sold worldwide, boost Tegra's margins by eliminating licensing fees, profit from Arm's long-term replacement of x86 chips, and possibly herald its return to the mobile, PC, and data center CPU markets. In other words, it could be well worth the $40 billion price tag.

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[Dark Sorrow]

Nvidia’s Arm takeover sparks concern in the UK, co-founder says it’s ‘a disaster’


LONDON — Arm co-founder Hermann Hauser has said if would be a disaster if U.S. rival Nvidia buys the British company he helped to build.
Nvidia announced Sunday that it intends to buy the Cambridge-headquartered chip designer off Japan’s SoftBank for $40 billion, saying it would create the “world’s premier computing company.”

However, speaking to BBC Radio 4 on Monday, Hauser said: “I think it’s an absolute disaster for Cambridge, the U.K., and Europe.”
Arm is widely regarded as the jewel in the crown of the British tech industry. Its chips power most of the world’s smartphones, as well as many other devices.
Despite some opposition, the company was acquired by SoftBank in 2016 for £19 billion ($24 billion) on the condition that it remained in the British city of Cambridge.
Hauser said thousands of Arm employees would lose their jobs in Cambridge, Manchester, Belfast, and Warwick if Nvidia “inevitably” decided to move Arm’s headquarters to the U.S. and make the company a division of Nvidia.
Nvidia would “destroy” Arm’s business model, which involves licensing chip designs to around 500 other companies including several that compete directly with Nvidia, Hauser said, adding that the new deal will create a monopoly.

Nvidia was not immediately available for comment when contacted by CNBC Monday. However, this weekend it said that Arm could remain headquartered in Cambridge under the deal. It added that it will create more jobs in the country and will build a new Nvidia-powered AI supercomputer.

Hauser said the commitments were meaningless unless they’re legally enforceable.
SoftBank Chief Executive Masayoshi Son said in a statement that “Nvidia is the perfect partner for Arm.”
While Simon Segars, Arm’s chief executive, said in a statement: “Arm and Nvidia share a vision and passion that ubiquitous, energy-efficient computing will help address the world’s most pressing issues from climate change to healthcare, from agriculture to education.”
He added: “By bringing together the technical strengths of our two companies we can accelerate our progress and create new solutions that will enable a global ecosystem of innovators.”
However, according to Hauser, the most important and concerning issue is one of economic sovereignty.
“If Arm becomes a U.S. company, it falls under the CFIUS (Committee on Foreign Investment in the United States) regulations,” he said. “If hundreds of U.K. companies that incorporate Arm’s (chips) in their products want to sell it or export it to anywhere in the world, including China, which is a major market, this decision on whether they’re allowed to export it will be made in the White House and not in Downing Street,” he said. “I think this is terrible.”
He urged the U.K. government to step in, block the deal, and help to take Arm public on the London Stock Exchange, which is what SoftBank initially planned to do.
Hauser has written an open letter to U.K. Prime Minister Boris Johnson and published it on a website called SaveArm.

Major concerns
The opposition party in the U.K. raised concerns about the deal last Friday, with Shadow Business Secretary Ed Miliband saying, “the government is doing nothing in the face of the risk of the company being swallowed up by Nvidia.”
At the time, a government spokesperson said that Downing Street monitors proposed acquisitions closely. “Where we feel a takeover may represent a threat to the U.K., the government will not hesitate to investigate the matter further, which could lead to conditions on the deal,” they said.
The U.K. has been on a mission to build an Apple-sized company of its own for years, but has had little success as many of its most promising tech companies have been sold to companies in the U.S. and China. One of the most notable examples in recent years is London AI lab DeepMind, which was acquired by Google in 2016 for around $600 million. Today, DeepMind is widely regarded as one of the world leaders in AI research.
Neil Lawrence, Amazon’s former director of machine learning in Cambridge, told CNBC: “Arm is the only large U.K. tech company that is an undisputed world leader. The majority of the world’s computer chips are made to their designs.”
“Nvidia’s original business was graphics, but their chips also happened to have the right architecture for the current generation of AI algorithms. They’ve capitalized well on that. But with so much U.K. focus on how we make ourselves a world leading economy after our departure from the European Union, it would be surprising if the deal is waved through without any form of review,” he added.

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