Intel’s Chipmaking Plans Threaten Arm Says NVIDIA As It Argues Deal Is Crucial For Arm’s Survival

Ramish Zafar
Nvidia CEO. Mr. Jen-Hsun Huang at Computex, Taipei in 2017; Associated Press

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Chip designer NVIDIA Corporation's multi-billion dollar struggle to acquire British design house Arm Ltd. hit a new roadblock earlier this year when the United Kingdom's Competition and Markets Authority (CMA) decided to raise serious objections for the affair. The CMA is the U.K's primary anticompetition regulator, and NVIDIA must secure the body's approval if it is to successfully close the deal. At this front, NVIDIA filed a response with the body earlier this week which dismissed the anticompetitive concerns raised by technology firms and outlined that as opposed to the general perception for the deal which is based around fears that it will be anticompetitive, the only way to foster competition is to ensure that NVIDIA brings Arm under its fold.

NVIDIA Rejects Assertions That Its Arm Acquisition Can Harm Competitors

The 29-page reply, some of which is redacted, addresses some of the markets that the merger is argued to affect and lists down the potential drawbacks to the Arm ecosystem should the merger fail and the target company pursues an initial public offering (IPO). In it, NVIDIA argues that Arm's current owner, the Japanese conglomerate Softbank, is looking to exit its stake in the company one way or the other, and if NVIDIA's attempt to buy Arm is struck down, then the only other option available to Arm will be an IPO.

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The American company believes that should Arm list its shares on the public markets, then the aftermath would see it beholden to shareholder priorities of profit maximization and cost-cutting. This, in turn, would jeopardize the early stages of the competition that Arm is giving to chip behemoth Intel Corporation and x86 processors in the datacenter markets.

As NVIDIA notes:

As a publicly traded company, Arm would likely not have the financial resources to invest sufficiently in early stage revenue businesses. NVIDIA is particularly concerned that these pressures would drive Arm to deprioritize datacenter and PC and to instead focus on its core mobile and growing IoT businesses. The result would be a concentrated CPU market largely controlled by Intel/AMD (x86), with the remainder controlled by powerful and far more profitable Arm architectural licensees such as [REDACTED].

NVIDIA Corporation's depiction of its Cambridge-1 Artificial Intelligence Supercomputer announced at the same time as the Arm acquisition. The Cambridge-1 will be located in the United Kingdom, with NVIDIA investing ~$52 million in the system aimed at helping drug companies leverage modern day computing in their research efforts. Image: NVIDIA Corporation

The world's largest graphics processing unit (GPU) designer then proceeds to demonstrate how it believes that none of Arm's existing customers are at risk from the deal's successful closure. Its primary line of argument is that all of Arm's largest customers are also NVIDIA's customers, and should it lock them out of the ecosystem or introduce unfavorable purchase terms, then the alternative datacenter central processing units (CPUs) products and designs available from Intel Corporation and Advanced Micro Devices, Inc (AMD) will ensure that Arm's customers have adequate alternatives.

Subsequently, not only will NVIDIA's business relationships with the companies suffer, but the fact that some of Arm's customers such as the Cupertino consumer electronics giant Apple Inc, and San Diego designer Qualcomm Incorporated design their own variations of Arm's products, they are unlikely to be affected.

NVIDIA outlines that:

x86 IP is available to all of Arm’s customers. Intel is directly targeting Arm’s narrow toehold in datacenter, enabling customers to use Intel IP to create custom chips. Arm’s highest-profile datacenter customer, Amazon, has already lined up as one of Intel’s first IFS customers. Dozens of other customers have already engaged with Intel, which is “opening the doors” to Intel IP and causing a “meaningful shift in how people think about Arm.”

The Decision dismisses Intel’s licensing program, suggesting that downstream customers will shun x86 IP and refuse to collaborate with Intel. Aside from being economically irrational, that would be surprising to Intel and the dozens of customers that have already engaged with it.

Intel's Ocotillo campus (pictured above) houses its Fab 42 which manufactures processors on the company's 10nm process node. Intel has committed to a $20 billion investment to build two new facilities in the Ocotillo campus. Image: Intel Corporation

NVIDIA also highlights the discrepant nature of Arm's licensing model and its own customer relationships. The company believes that the argument of NVIDIA foreclosing Arm's partnerships with customers is illogical simply due to the fact that while NVIDIA's partnerships with them result in products becoming available immediately in the market, Arm's licenses often cover products that will not see the light of day for many years to come.

It believes that:

If the Merged Entity suddenly announced that it would breach its contracts (and its commitments to regulators) and refused to license henceforth, licensees could still manufacture and sell Arm-based chips throughout the next decade—and sell them for even longer (because all Arm licensees have perpetual manufacturing rights). Licensees would have plenty of time to find alternatives, with no benefit to the Merged Entity for many years. Accordingly, the Merged Entity cannot foreclose Arm customers, even if it wished.

The full document is available on the CMA's website and the body's updated timeline sets a deadline for the 2nd of May 2022 for its final ruling on the affair. In addition to close scrutiny at the British body, the U.S. Federal Trade Commission has commenced legal proceedings against NVIDIA, alleging that the deal is monopolistic and anti-competitive.

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