Foreign media: Nvidia’s acquisition of Arm’s transaction may ultimately fail

According to a report by the author of the foreign website seeking alpha, Nvidia’s acquisition of Arm may eventually fail.

He pointed out that despite the high price, Nvidia’s acquisition of ARM from SoftBank seems to be an interesting transaction. Because more and more ARM-based designs seem to be ready to dominate the computing field, from mobile devices to PCs to servers (and microcontrollers that are already dominant). However, I think this transaction will not pass regulatory review. This article will explain why.

First, as with such transactions that affect the entire world, competition authorities in many countries will express their opinions on the matter. U.S., European, U.K., Chinese and Japanese entities will certainly have a say in approving or rejecting this transaction.

If this transaction happened a few years ago, I think only the UK might have some problems. The problem will revolve around the remaining intellectual property rights, headquarters and research facilities in the UK, which may be solved-just like when Japan’s SoftBank acquired ARM in 2016.

But that was then and now. Now, the world has changed a lot. At least three geographic regions may oppose this transaction with varying strengths. Let me start with China first:

 China

The author believes that China will not approve the NVIDIA/ARM transaction. They will not approve unless there is a major change in the US attitude towards China during Biden’s administration. China cannot even rationally approve the deal. Let me explain why.

In 2019, in the context of adopting a more radical stance against China and a continuing trade war, the United States included Huawei on the list of entities. This move limits the ability of American companies to provide Huawei with various product components ranging from smartphones to 5G base stations.

This is already a big problem, because the components used by Huawei include components such as Google Android, namely Google Play and Google Services components. The lack of these components puts Huawei’s smartphones at a great disadvantage in the international market. The other products affected are laptops and the like due to lack of OEM Windows support or x86 CPUs. American companies also provide many other supplies, so for Huawei, the situation immediately becomes very difficult.

However, the United States did not stop. I think this is a very controversial measure. The United States has expanded its blockade of Huawei to include not only the supply of American companies, but also the supply of foreign companies that use American semiconductor manufacturing equipment design software. In other words, the law now also applies to foreigners on foreign land (with relevant sanctions for violations of the law).

This upgrade means that Huawei is basically shut out of all modern components, including TSMC’s semiconductor manufacturing services. That is to say, although Huawei can design its own chips (very reliably), it cannot produce them with the most advanced technology. Therefore, future competitive CPUs will always be weak. This measure fundamentally affected all of Huawei’s business, including the sales of smart phones in China, including the sales of smart phones in China, until now has not been affected.

Now, please note the following:

Huawei is China’s technology champion. However, foreign countries have adopted laws in their domestic and foreign corporate citizens, and basically declared war on Huawei. The blockade suffered by Huawei is an actual act of war (applicable to ports, cities, and countries).

Later, the United States did the same with SMIC, another important Chinese technology company, which is a competitor of TSMC.

To make matters worse, this move by the United States has had the greatest impact on Huawei by enabling TSMC to comply with US laws. TSMC belongs to Taiwan, China. Therefore, in practice, this is equivalent to the prohibition of foreign power writing laws applicable to Texas, prohibiting Texas companies from supplying supplies to American companies. Imagine the impact in the United States.

Under this circumstance, China cannot approve the acquisition of ARM by American companies at all. In short, this acquisition will take away the only relevant CPU architecture in China that can still be used without US approval. China cannot allow this to happen, so it will not approve the merger, and may take drastic measures to prevent unauthorized passage.

U.K

The primary task of the UK is to retain the work, technical knowledge and intellectual property rights in the UK. SoftBank provides guarantees and is trustworthy in these guarantees. Guarantees from American companies may be more difficult to trust, especially when Nvidia hopes to achieve synergies.

This can happen to any acquiring bank. However, it is surprising that even the United Kingdom has been paying attention to the situation in China, and some people worry that their domestic companies may one day be subject to the same mandatory or export control restrictions. You don’t need to trust me on this. Even the ARM co-founder expressed the same view:

Hermann Hauser stated that the sale of Arm to American chipmakers would be “a disaster for Cambridge, the UK and Europe” and would see “the last company to sell global relevance to Americans.” European technology company”.

Hauser said that the British government should impose some rules on this transaction to protect job opportunities, retain Arm’s long-standing “open business model” and prevent “the United States from conducting security reviews of its customer relationships.”

In any case, the United Kingdom is a very close ally of the United States, so despite some resistance, the deal may continue.

 Europe

I think the unexpected place is the unforeseen boycott of European transactions. In fact, Peter Mandelson, the former EU trade commissioner, has publicly expressed doubts about the transaction. His main reason is again similar to what I said about China and (part of) the United Kingdom:

Nvidia is an American company. The acquisition will transfer the ownership of Arm to the U.S. government. The U.S. government can then impose export restrictions on chips to protect national security interests and promote foreign policy goals.

He said: “The United States will have the right to stop chip supply in companies or countries that the United States does not like.”

The former minister argued: “At the European level, they talk about European strategic interests, but they don’t really see how this concept works in the real world.” ARM is the “biggest example” of the concept of “sovereignty and autonomy”.

He added: “Europe must have a better and clearer understanding of how to use geopolitical power to harm Europe. Not only China, but even the United States, one of its closest allies.”

As I said, ten years ago this was regarded as some kind of madness. America? Interfere with European sovereignty? nonsense!

The fact is that the world has changed a lot in the past 10 years. Surprisingly, Europe has had the opportunity to taste what Peter Mandelson suggested. How about it? Through the incident concerning Nordstream 2 (the natural gas pipeline between Russia and Germany).

This is a project between Russia and Germany. It only concerns Russia and Germany (and Europe as a whole). However, the United States is already forcing European companies to take sanctions and refrain from working on this project. In other words, the United States is enacting laws for foreign companies working on foreign land, just like Taiwan in mainland China.

Similarly, Europe is already tasting the effects of this technology, and companies such as STMicroelectronics or ASML are forced to stop selling products to Chinese customers to prevent them from also being hit by US sanctions. Similarly, a foreign company in a foreign country sells to another country. Strangely, the United States often opens exceptions to American companies without approving foreigner licenses (this is incredible, but true).

Between the protection of Europe’s need to obtain advanced technology, the need to serve the Chinese market, and the need to maintain sovereignty and independence, this factor is likely to be sufficient to prompt Europe to also refuse to approve the ARM/Nvidia merger. Note that if this happens, it will be a truly surprising result-meaning that in Europe, ARM is owned by Japanese owners rather than US owners. Both are foreigners (to Europe).

other

If SoftBank fails to sell ARM to Nvidia, it is likely to issue ARM publicly. In fact, in the current extremely hot market, SoftBank may even get a higher valuation. Before turning to pure sales, SoftBank believes this is a viable plan.

For Nvidia, the situation will remain the same-Nvidia will still have the right to use ARM technology because ARM licenses its technology to all competitors (including Chinese companies). If the transaction is rejected, it may have a temporary negative impact on Nvidia’s stock price. This may also limit Nvidia’s future potential, just as we seem to be the vane of switching from x86 to ARM on every computing device.

 finally

Mainly due to recent events (which occurred in the past two years), it now appears that one or more foreign regulatory agencies are likely to oppose Nvidia’s intention to acquire ARM.

For Chinese regulators, this seems certain. But it seems that Britain or Europe (and possibly Europe) will also oppose the deal.

If you go back to five or ten years ago, this conclusion may be very different.

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