Nvidia has confirmed that it will acquire Arm from Softbank for $ 40 billion. The deal was confirmed after weeks of speculation as well as yesterday’s report by the Wall Street Journal.
Santa Clara, California-based graphics and AI chip maker Nvidia said the deal consolidates its artificial intelligence expertise with Arm’s vast computing ecosystem. Arm, based in Cambridge, England, employs more than 6,000 people while Nvidia has more than 13,000 employees.
SoftBank privatized Arm for $ 32 billion in 2016. At the time, Masayoshi Son, CEO of SoftBank, said he was preparing for the Singularity, the predicted day when AI will collectively become smarter than humans. But SoftBank has got into a money crisis after losing billions of dollars to the pandemic and bad bets on Uber and WeWork.
Nvidia said it will expand Arm̵
In a letter to employees, Jensen Huang, CEO of Nvidia said, “Arm’s business model is brilliant. We will maintain the open licensing model and customer neutrality, serving customers in all industries around the world and further expanding Arm’s IP licensing portfolio with the world’s leading GPU and AI technology from NVIDIA. “
He said the deal will expand Nvidia’s reach for programmers from its current two million to more than 15 million.
In a conference call, Huang reiterated the promise to maintain the open licensing policy, saying that Nvidia and Arm are complementary. As a result, Huang does not anticipate regulatory restrictions. He noted that Nvidia is not entering the smartphone market, while Arm is very focused on it.
Apple plans to use ARM-based processors to replace Intel processors in future models of its Mac computers. Huang said he believes Nvidia will be able to accelerate Arm’s business plans. On the conference call, Arm’s CEO Simon Segars said Arm’s value is in providing chip designs to anyone who wants to build it. Otherwise it would be “extremely destructive”.
Segars added, “We’ll prove it over time. We are very clear about our intention today. “
Poor doesn’t make chips himself. It is the administrator of the ARM processor architecture and creates designs that other companies license for nearly everything electronic and use in their own chips. Earlier this year, Arm announced that its licensees had shipped more than 180 billion chips with ARM designs.
Nvidia was a strong competitor to competitors like Intel and AMD. Apple used technology from Imagination Technologies to create the graphics processing components in its iOS devices, and it wasn’t a big customer for Nvidia’s graphics on the Mac side. Nvidia has advertised itself as the giant of the PC industry with a turnover of 13 billion US dollars (after twelve months) and a market value of 330 billion US dollars. The latter is higher than Intel’s $ 144 billion worth.
If the deal is approved, these big competitors will become Nvidia’s customers. For Nvidia it would make sense to treat Arm as an independent subsidiary and to continue open customer relationships with competitors in the processor business. Arm still has rivals like the royalty-free RISC-V architecture, which is increasingly being supported by businesses fed up with Arm’s royalties.
The deal would secure Nvidia’s future access to processor technology. If Arm fell into the hands of rivals, Nvidia could be disfellowshipped. And it still competes fiercely with the likes of Qualcomm, Intel, and AMD. Owning Arm is kind of an insurance policy for Nvidia, especially if it doesn’t trust a company in control of the critical intellectual property for its AI and mobile processor efforts.
“The Nvidia arm deal, at $ 40 billion, is not only the largest semiconductor deal by US dollar volume, but also, in my opinion, the one with the greatest impact,” said Patrick Moorhead, analyst at Moor Insights & Strategy. “The deal fits perfectly with the fact that Arm plays in areas where Nvidia is not or not as successful, while Nvidia plays in many places where Arm is not or not as successful. Nvidia brings incredible capitalization to Arm. As we’ve seen since acquiring SoftBank, Arm has increased its market presence and competitiveness. SoftBank’s investment enabled Arm’s foray into the data center, automotive, IoT and network processing markets. I believe Nvidia can only make it stronger as long as it sticks to its commitment to let arm do what they do best, which is to create and license IP in a globally neutral way. “
The transaction is expected to have a positive impact on Nvidia’s results, which means that Arm is profitable and should immediately add profits to Nvidia’s own net income. SoftBank will keep a stake in Arm, but the stake is expected to be less than 10%.
In a statement, Huang said trillions of computers running AI will create a new Internet of Things that is a thousand times bigger than today’s Internet of People. That deal will position Nvidia for that age, he said.
“This is a great way for us to reach thousands of developers who will ship billions of chips and will eventually ship trillions of chips,” said Huang.
Segars said the companies share a vision of how energy efficient computing can help address issues from climate change to health care. He said that realizing the vision will require new approaches to hardware and software. Nvidia said it will retain the Arm brand identity and name and remain a business unit in the UK.
As part of the transaction, approved by the boards of Nvidia, SoftBank and Arm, Nvidia will pay SoftBank a total of $ 21.5 billion in Nvidia common stock and $ 12 billion in cash, including $ 2 billion due upon signature numbers are. The number of Nvidia shares to be issued at the time of closing is 44.3 million, based on the average closing price of Nvidia common shares over the last 30 trading days. In addition, SoftBank may receive up to US $ 5 billion in cash or common stock under an earn-out scheme provided Arm meets certain financial performance targets.
Nvidia will also issue $ 1.5 billion in equity to Arm employees. Nvidia intends to fund the cash portion of the transaction with on-balance sheet cash. The transaction does not include Arm’s IoT Services Group. According to Huang, the IoT business is a data-centric investment business that does not focus on the core computational arm business and has sales of around $ 100 million. Segars said progress would be made on plans to spin off that part of the business.
Under SoftBank, Arm was hiring thousands of engineers, and Segars said that would continue. Segars said China is an important part of Arm’s business and he expects it to stay that way. Huang said he expected Chinese regulators to review the deal, just as they reviewed Nvidia’s acquisition of Mellanox.
“It takes months for something in this complex,” said Huang when asked why the deal took months to close.