Arm & NVIDIA – The unthinkable pt. VI.

Simon and Jensen make their case.

• Arm and NVIDIA have made a good case as to how the technology industry (excluding Intel and AMD) will benefit from NVIDIA’s acquisition from Arm, but I doubt that this was enough to win over its opponents meaning that momentum for RISC-V is likely to continue.
• Simon Segars (CEO Arm) and Jensen Huang (CEO NVIDIA) participated in a panel at the Six Five Summit (see here) where they laid out their case for the acquisition of Arm by NVIDIA to proceed.
• Their case is very simple and revolves around the fact that computing is being implemented in all areas of corporate, public, and private life creating a huge opportunity for Arm to expand its reach beyond mobile.
• Arm has made some headway on its own in this task, but the argument is that with NVIDIA, Arm will be able to do this much more quickly and with greater success given the large scale of the combined entity.
• This will be good for customers as it will help Arm licensees such as Qualcomm, MediaTek, Samsung, and so on break into parts of the semiconductor market that have been unable to do so to date.
• As Arm’s reach grows there will be also a great opportunity for NVIDIA to fill in the pieces where Arm does not play and to also increase its market position and this is where the controversy arises.
• Critics of the transaction are concerned that by owning Arm, NVIDIA will have undue influence on its roadmap and get favourable treatment from Arm that will give it advantages over Arm’s other customers.
• This would allow NVIDIA to produce better companion products and technologies to go along with Arm’s giving it an advantage over everybody else.
• This concern is not new and has been around for the entirety of the 20 years that I have looked at Arm whenever an acquisition has been contemplated.
• There is plenty of evidence in the technology industry that suggests that this conflict of interest can be adequately managed so that all licensees including NVIDIA are treated equally.
• Samsung has successfully managed an almost identical problem within its business units for years with no real issue.
• Samsung’s handset competitors have been purchasing memory, storage, and displays from Samsung for years and would have stopped doing so in a heartbeat had there been even a whiff of unfair treatment.
• Hence, I think that this issue is entirely manageable, but the problem is that it is never going to go away until 5 or so years after the acquisition has closed and the deal has been a smashing success and the benefits have been proven to the critics.
• This is something that Arm and NVIDIA are just going to have to put up with until they can prove all of the critics wrong.
• The biggest hurdles that remain to the acquisition are the Chinese regulator (to whom NVIDIA has now applied for clearance) and the UK regulator which has recently become more sensitive to the sovereignty of technology created on its shores.
• NVIDIA and Arm are making steady progress on that front and so I think that there is an improving probability that the transaction goes ahead.
• This will keep the interest in the open-source alternative to Arm, RISC-V, at elevated levels but I continue to think that RISC-V really only makes sense at the low end of the market where it has already seen considerable traction.
• This is a high volume, low margin market but it does give RISC-V a beachhead from which to expand over time.
• Assuming that the benefits of the transaction come through, then the ones that should be the most concerned are Intel and AMD who are heavily invested in the x86 processor which continues to dominate both PCs and the data centre.
• It is clear that Arm’s incursions into this area will be greatly increased should the deal close and Apple’s recent chip announcements indicate that with the right designs, an Arm processor can be a viable alternative to the x86.
• This is why Intel needs to fix its leading-edge manufacturing problem as soon as possible and demonstrate that when it comes to performance, the x86 processor still has an edge.
• Intel still has some time as the deal could very easily slip beyond the 18-month window set when it was originally announced, but the threat is looming and growing larger by the day.
• On balance, I still think that the best place for Arm is as an independent public company as this is the only way to put the concerns to rest.
• However, there is a case to be made for this acquisition and the hurdles for it to succeed are gradually lessening.