Nvidia-ARM merger dead? US authorities seek to block the sale

Nvidia and ARM merger threatened to be blocked by the FTC

It has been over a year since Nvidia has announced a deal to buy ARM – source of the instruction set and CPU architectures that power embedded and mobile devices, phones and increasingly computers, laptops and servers. But now it looks like there is a major chance that this merger will not happen. US authorities have raised the loudest “NO” yet, aiming to stop the acquisition for fear it would stifle innovation and competition.

Objections against the Nvidia-ARM merger could be heard from multiple companies that the sale concerns and it became obvious that government watchdogs have become sceptical in many countries – both the EU and the UK have decide to launch a more detailed probes (such investigations alone might cause Nvidia to miss the previously agreed closing date). Problems (if not outright retaliatory obstructions due to protracted disputes with US) have also been expected in China. However the greatest obstacle has now arisen in the US.

The US Federal Trade Commission (FTC) has announced on Thursday that it is suing to block the acquisition. It is not an explicit blocking (and also not a definitive) decision for now and it remains yet to be decided by court. It is nevertheless a significant move, because FTC is not simply voicing concerns that Nvidia could address with various concession and that the body could in the end put aside and let the merger go through. It is demonstrating a clear will to entirely stop the process instead.

Additionally, the fact that this is filed in form of a lawsuit indicates that the FTC considers the acquisition to be in violation of US law (primarily antitrust laws) and that it is therefore not to be considered as merely a minor threat to market competition.

FTC: Nvidia + ARM might stifle innovation in emerging technologies

The FTC lawsuit states arguments that had appeared before – that the record-breaking acquisition would create a dominant player too big in the field, while ARM independence and neutrality would vanish at the same time. FTC argues that Nvidia might assert its own interests on ARM to the disadvantage of external customers or its competitors that happen to be ARM customers as well. Nvidia further might abuse sensitive information about its competitors acquired through ARM.

Eventually Nvidia might influence ARM in order not to sell or develop technologies that might empower competitors to its own products (hypothetically Nvidia could be tempted to artificially cripple e.g. the Arm Mali GPU architecture to prop up  its own Nvidia GeForce graphic cores). In other words, an independent ARM might, according to the FTC, introduce various innovations that Nvidia would scuttle and suppress if in charge and thus potentially inflict damage to the whole computer industry.

ARM CPU Nvidia Grace pared on one module with a computing GPU (Source: Nvidia)

The FTC also explicitly disapproves of Nvidia acquiring an unhealthy amount of control over markets where it already participates using ARM licensed technology and the merger would give it advantage against competition offering similar products.

According to the FTC, those fields are: the sector of CPU/AI accelerator for self driving cars, further the so called SmartNICs (network adapters with an integrated compute capacity and a system, which Nvidia offersin its BlueField line-up using an ARM architecture) and also in the field of ARM server CPUs as used in e.g. cloud services. Those three fields are described as emerging markets, with a potential for a huge expansion in the future and their development as well as the competition in them might be damaged by Nvidia absorbing ARM. Alongside potential intentional anticompetitive moves, even unintentional effects, like the loss of trust towards ARM due to a fear of a hypothetical risks of anti-competitive abuses, might be themselves prove harmful according to the FTC.

Nevertheless objections based on an inappropriately strong influence or on anti-competition hazards an ownership of ARM by Nvidia might create does not apply only to those three fields, but potentially to all market sectors, in which ARM plays a role.

Nvidia Drive Atlan, ARM chip for self driving cars (Source: Nvidia, via VideoCardz)

According to Nvidia, the benefits outweigh the risks

Nvidia has repeatedly commented on the fears and on the objections posed by regulatory authorities. Nvidia’s stance is that the acquisition will improve ARM’s financial power, in turn enabling stronger technological and innovative potential. Jen-Hsun Huang has stated his hope for the regulatory authorities to recognize the benefits that would stem from the merger with ARM and that these will outweigh their concerns.

The company has also pledged various obligations not to abuse its position against competitors (however such commitments might prove to be hard to enforce once the deal has been cleared and closed and a some time has passed). Nvidia is further willing to accept various concessions and compensation, for example in the form of investments in Great Britain’s tech sector.

Notwithstanding and as already stated, the US is not the only concerned country, where this deal is being opposed. The UK and the EU have already approved a broader investigation of this acquisition, which in itself does not explicitly express a clear resistance (and might not pose an immediate threat to the merger), but it is likely to at least delay the process.

Thereby Nvidia faces the possibility of losing 1,25 billion dollars in cash that it has paid to Softbank and will not get back in case of a failed acquisition, at least in the case where the acquisition proceedings will exceed the agreed date, set to be in the autumn of 2022. Jen-Hsun Huang has started to admit that the acquisition process might stretch beyond the the originally planned 18 months (which in itself is longer than the usual one-year period – Nvidia has expected this to be a more difficult transaction than usual, from the start).

Nvidia is not beaten yet, but odds have worsened a lot

So far we do not know how the lawsuit will turn out. It is possible that Nvidia will manage to negotiate a settlement with FTC and the lawsuit will be withdrawn, thus removing the FTCs blocking position. Therefore this news does not yet mean a definitive end of Nvidia’s ambitions with ARM.
However it has cast the most doubts there has been over this deal in its history. In combination with China’s unpredictable stance, it now seems to be quite a risky bet to count on a successful completion of this acquisition.

Sources: FTC, TheVerge

English translation and edit by Karol Démuth, original text by Jan Olšan, editor for Cnews.cz


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