This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
Chip designer NVIDIA Corporation's bid to acquire British design house Arm Ltd. has received fresh opposition from AI accelerator and machine learning chip developer Graphcore. Graphcore, which is based in the United Kingdom, plans to develop what it dubs as an 'Intelligent Processing Unit' - a large chip that is responsible for all of the artificial intelligence operations inside a system, with the company's latest GC200 chip expected to house a staggering 59 billion transistors and be built using the Taiwan Semiconductor Manufacturing Company's (TSMC) 7nm FinFET manufacturing process.
NVIDIA Being Dishonest About Plans To Keep Arm's Existing Business Model States Arm Founder
The dissent was submitted to Britain's Competition and Markets Authority (CMA), which is the U.K.'s anti-competitive market regulator. The CMA started its investigation of the $40 billion deal in January when it sought comment from third parties about the entire affair. Its 'Invitation to Comment' started on January 6th and ended on the 27th of January, and since then, the regulator has been tight-lipped about the entire affair. Following the invitation, the CMA is set to launch a merger inquiry and release a Phase 1 decision, but the timelines for both these steps is not publicly available.
Details of Graphcore's opposition were revealed by Mr. Hermann Hauser, whose firm Acorn Computer was spun off into what we now know today as Arm Ltd. in the 1990s. Mr. Hauser is a Graphcore investor but does not have any investment interest in Arm, and he was one of the first to come out in opposition of the deal after NVIDIA announced it last year.
His statements were made to CNBC via a Zoom interview in which the investor was scathing in his criticism of NVIDIA and the deal. According to him,
“If Nvidia can merge the Arm and Nvidia designs in the same software then that locks out companies like Graphcore from entering the seller market and entering a close relationship with Arm.”
Graphcore did not respond to CNBC's request for comment but the company's C.E.O has also previously voiced his opposition to the deal.
Criticism Surfaces As U.K. Regulator's Deadline For Comments Expires
Mr. Hauser's then proceeded to state that NVIDIA's claim that it will maintain Arm's existing business model is intended to deceive regulators. Soon after the deal was announced, NVIDIA's founder and C.E.O. Mr. Jen-Hsun Huang sat down for a fireside chat with Arm chief Mr. Simon Segars. In this chat, the executive shared his views and motives about the deal in detail, as he repeatedly stressed that his company will not interfere in Arm's current way of doing business.
According to Mr. Huang's comments made about regulatory scrutiny at the chat:
So the first thing is to explain what we do, where we belong in the ecosystem [once we do this] people will realize we’re complementary companies; that two companies being complimentary when combined will create new innovations which is good for the market, drives innovation forward it’s good for customers. And when they realize that we love the business model, we’re going to protect the business model, we’re going to create and continue to nurture this neutral, committed, consistent, trusted platform so that our ecosystem can continue to flourish and even grow, I think when people realize that, they’re going to be really quite excited about that."
Responding to Mr. Hauser's accusation of dishonesty, an NVIDIA spokesperson stated to CNBC that,
“We are discussing our plans with the U.K. government, and we are very happy to put legally binding agreements behind all our commitments.”
Whether the spokesperson's definition of ''commitments'' also includes Mr. Huang's statements of preserving Arm's business model is uncertain. Furthermore, whether NVIDIA considers product-bundling (i.e. launching its and Arm's products in a single package) separate from Arm's business model is also unknown.
The U.K. isn't the only country where the deal is facing opposition from local companies. Another hotbed of opposition for the acquisition is China, where regulators have to battle with the complex question of placing another crucial information technology firm under the ambit of the United States government.
"In-depth" investigations in the U.K. and the E.U. are set to open reported the Financial Times earlier this week, with the publication's sources expressing both doubt and confidence for the deal's approval.
Chinese Regulators Likely To Determine Outcome Of Deal Even If Britain Gives It The Go Ahead
Researchers and anti-competitive law experts have expressed their doubts on the deal's ability to pass regulatory scrutiny in the East Asian country, with the competition with local companies being a key concern for China's Ministry of Commerce. Chinese efforts to develop a local chip sector have sped up in the wake of American sanctions against Huawei Technologies Ltd. limiting the company's ability to procure chips fabricated through leading-edge manufacturing processes.
Huawei has also been rumored to have opposed the deal, as it pushes China's State Administration for Market Regulation to ensure that it will be able to access Arm's chip IP in the case that the deal is approved. Huawei uses this IP (intellectual property) to design processors such as Kirin SoC (system-on-chip) lineup for its smartphones.
Chinese academic Ni Guangan, a member of China's Academy of Engineering also expressed a bleak view for the deal's future. Speaking at the Fourth Information Security Industry Development Forum, Mr. Ni stated that the deal will be detrimental to Chinese interests and therefore it was unlikely to clear regulatory scrutiny.
Not only is the acquisition a potential $3.5 billion revenue opportunity for NVIDIA, but through it, the GPU designer will be able to leverage its AI and machine learning strengths in tandem with Arm's near-ubiquitous ecosystem and its growing presence in growing markets such as supercomputing. The deal's critics worry that if NVIDIA is allowed to follow through with it, the Santa Clara company might force Arm's customers to buy NVIDIA products as well – and effectively lock competitors out of the ecosystem.