The Wall Street Journal reported Saturday that SoftBank Group Corp. is nearing a deal to sell British chip designer Arm Holdings to Nvidia Corp. for more than $40 billion, potentially shaking up the semiconductor industry. Here is a look at what we know.
What is Arm?
Arm Holdings is one of the world’s most important behind-the-scenes semiconductor companies. It designs and licenses the basic blueprints of chips that are in more than 95% of the world’s smartphones. Its current owner, SoftBank Group Corp., bought it four years ago for $32 billion, saying its technology could underpin tomorrow’s “Internet of Things,” in which a universe of everyday objects such as lightbulbs and sneakers are connected to the internet.
Based in Cambridge, England, Arm was founded in 1990—a spinoff of a collaboration between Apple Inc. and Acorn Computer Group. It took a different strategy than rival Intel Corp., focusing on designing chips that consumed the least energy. That put Arm in position to take advantage of the smartphone revolution in the 2000s, as Apple, Samsung and other device makers sought chips that sipped rather than gulped battery life.
What is Nvidia?
Nvidia Corp. is best known for making the graphics chips in videogames that have been in hot demand during the pandemic. Its chips are, for instance, in the wildly popular Nintendo Switch. But Nvidia does much more. Its chips also go into data centers that are seeing booming business as remote work has taken off, and they have become the workhorses of artificial-intelligence calculations that have grown as more businesses embrace automation. All that has made Nvidia a Wall Street darling. Its shares have more than doubled, helping Nvidia become the most valuable U.S. semiconductor maker, overtaking Intel.
Nvidia, based in Santa Clara, Calif., was founded in 1993, envisioning a future when the personal computer would become the preferred device consumers use to play games or consume multimedia content, a bet that has paid off in spades. The company is still run by co-founder Jensen Huang, a Taiwanese-American who previously worked at Nvidia’s graphics chip-making rival Advanced Micro Devices Inc. The surge in videogaming demand helped Nvidia report record sales in the most recent quarter.
Why is the deal happening?
SoftBank had been under pressure to shore up its flagging stock price and promised some $40 billion in asset disposals. Most or all of that is already under way or completed, and its shares are up more than 20% this year.
For Nvidia, the deal would give it almost overnight a dominant role in the lucrative business of providing chips to smartphones like Apple‘s iPhone. It would also make the company a more formidable competitor to Intel as some chip makers begin to adapt Arm designs in servers and PCs. Apple this year said it was ditching Intel processors from its Macs in favor of more-efficient integrated chips based on an Arm technology.
What does it mean for the chip industry?
The transaction would mark one of the biggest changes in the semiconductor landscape in years—basically since SoftBank bought Arm. It is also Nvidia’s biggest ever acquisition by a long shot.
But the deal faces potential roadblocks. It is unfolding at a time the chip industry is a battlefield between the U.S. and China over dominance in the tech industry. Regulators in both countries would have to sign off on the transaction and have used their power to thwart deals, including when the Trump administration nixed Broadcom Inc.’s hostile takeover bid of Qualcomm Inc.
Some politicians in the U.K., Arm’s home base, also have expressed misgivings over a potential sale. When SoftBank bought Arm, it pledged to grow jobs in Britain. The opposition Labour Party warned recently that a deal for Arm could lead to job losses and wants assurances that wouldn’t happen.
And Arm customers also may try to raise concerns about a purchase by Nvidia. Arm’s business model involved partnering with as many customers for its designs as possible. It has avoided signing exclusive contracts, a philosophy it spelled out in a 2013 doctrine titled “A Shared Purpose.” That approach has enabled competitors like Samsung Electronics Co., Qualcomm and many other blue-chip tech companies to rely on Arm as a neutral supplier. Now those customers face the prospect that one of their chip-making competitors would own Arm, potentially undermining its reputation as the Switzerland of the semiconductor industry.
Write to Asa Fitch at [email protected] and Stu Woo at [email protected]
