FTC Crashes NVIDIA’s Party by Suing to Block its $40 Billion Deal To Acquire Arm Holdings

Rohail Saleem

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NVIDIA (NASDAQ:NVDA) is now facing the most stringent test yet to its planned acquisition of the chip designer Arm Holdings.

To wit, the US FTC is now suing NVIDIA to block the $40 billion deal. FTC Bureau of Competition Director, Holly Vedova, said in a statement:

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"The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies."

Vedova went on to note:

"Tomorrow's technologies depend on preserving today's competitive, cutting-edge chip markets. This proposed deal would distort Arm's incentives in chip markets and allow the combined firm to unfairly undermine Nvidia's rivals."

The FTC has cited three main avenues where competition might be stifled if the NVIDIA-Arm deal goes ahead. These include Advanced Driver-Assistance Systems (ADAS) for passenger cars, DPU SmartNICs, which are advanced networking products used to increase the security and efficiency of datacenter servers, and Arm-based CPUs for cloud computing. The suit also alleges that NVIDIA would gain access to "competitively sensitive information" of Arm's licensees by pursuing this deal.

NVIDIA plans to complete this acquisition deal by March 2022. Otherwise, Japan's SoftBank Group, which currently owns Arm, will win the right to retain $1.25 billion as a breakup fee. Bear in mind that NVIDIA has already paid this amount to SoftBank as a down payment.

However, this deadline is now firmly lodged in the elusive camp following stringent opposition from the EU as well as the UK. Back in August, UK's CMA had flagged the deal for stifling "innovation across a number of markets". While conceding that NVIDIA had offered a behavioral remedy to counter competition concerns, the CMA concluded that an in-depth phase 2 investigation was now warranted. Similarly, the EU's anti-trust authority is also probing the deal, with a ruling expected by the 15th of March 2022. Meanwhile, NVIDIA is also facing hurdles in China, where Huawei Technologies Ltd. has reportedly raised concerns that its access to Arm's IP might be hampered by the deal.

As a refresher, ARM designs silicon chips and licenses instruction sets that govern how chips communicate. Moreover, ARM's intellectual property – including the company's Reduced Instruction Set Computing (RISC) Instruction Set Architecture (ISA) – is utilized by the likes of Apple, Qualcomm, Samsung, and Huawei for their smartphone chips, thereby corresponding to a market coverage of around 90 percent.

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