Nvidia said that it would buy chip designer Arm from SoftBank in a cash-and-stock deal valued at up to $40 billion, a move that could reshape the landscape of the global semiconductor industry.
If the deal closes, it would transform Nvidia into one of the most dominant players in the market for chips used in smartphones. The deal would also strengthen the Santa Clara, California-based company’s stature in other segments of the technology industry, including the Internet of Things—tiny computers slapped on factory floors, automobiles, street lights, thermostats, and billions of other devices that communicate wirelessly—and data centers.
Nvidia sells graphics processing units (GPUs) for gaming on personal computers and carrying out artificial intelligence chores in data centers. It also develops networking chips for ferrying around these warehouses of servers. Arm designs central processing units (CPUs) and other intellectual property that other companies build into chips that power in most of the world’s smartphones. Arm-based chips are also starting to play a deeper role in cloud data centers.
“Uniting Nvidia’s AI computing capabilities with the vast ecosystem of Arm’s CPU [technology], we can advance computing from the cloud, smartphones, PCs, self-driving cars and robotics to edge IoT and expand AI computing to every corner of the globe,” Jensen Huang, chief executive and co-founder of Nvidia, said in a statement. He added that the deal would “create the leading company computing company for the age of AI.”
SoftBank, which purchased Arm for around $32 billion in 2016, has reportedly been considering a potential sale or initial public offering for the chip designer in recent months. The announcement of the deal Sunday confirmed long-simmering rumors of Nvidia’s interest in buying Arm.
SoftBank will have an ownership stake in Nvidia of less than 10% following the deal. “SoftBank is excited to invest in Arm’s long-term success as a major shareholder in Nvidia,” the firm’s chief executive, Masayoshi Son, said in a statement.
Under the terms of the transaction, Nvidia said it would purchase Arm for $21.5 billion in stock and $12 billion in cash, including $2 billion for signing the deal. The company also agreed to pay SoftBank up to $5 billion in cash or common stock based on the chip designer’s business performance. The deal also includes $1.5 billion in share compensation for Arm’s employees.
The deal would also create a more formidable rival to US semiconductor stalwart Intel. Nvidia has overtaken Intel as the most valuable US chip company and currently holds a market cap of $310 billion. Nvidia shares have soared since last year, partly due to booming demand for chips that run artificial intelligence calculations in data centers as businesses boost spending on cloud services. It has also been buoyed by stronger sales of graphics chips used in gaming computers.
Intel has a market value of roughly $210 billion. Advanced Micro Devices, another rival that sells graphics processors for data centers and personal computers, is currently valued at $90 billion.
Major chip vendors and technology giants have started to adapt Arm designs for use in personal computers and servers, where Intel has not had much competition for years. In June, Apple said it would replace Intel processors in its Macs with a more energy-efficient, in-house design based on the Arm architecture. Cloud computing leader Amazon has also rolled out a homegrown, Arm-based server CPU that it rents out over its cloud service, giving customers an alternative to Intel.
The deal could draw opposition from other players in the semiconductor industry that are now facing the prospect of a rival having control over Arm’s instruction set architecture (ISA), which acts as a basic set of instructions for designing a microprocessor. The concern is that the deal will give Nvidia an unfair advantage over Arm’s other licensees, analysts said. More than 180 billion chips based on Arm’s intellectual property have been shipped to date globally.
Nvidia signaled that it is trying to address concerns that the deal could upset Arm’s more than 500 customers, including Apple and Qualcomm, and compromise its status as an independent, neutral party. The company said it would continue Arm’s practice of licensing out chip designs to anyone willing to pay for them. Nvidia also plans to expand Arm’s portfolio by rolling out its own intellectual property to customers for the first time, including its flagship GPU and AI technology.
The Silicon Valley company guaranteed that it would preserve Arm’s “neutrality” with its customers. “Arm’s business model is brilliant,” Huang said in a letter to Nvidia employees Sunday. “We will maintain its open-licensing model and customer neutrality, serving customers in any industry, across the world,” he said.
Nvidia said Arm will continue to use its name and brand identity and that its intellectual property will remain registered in England. In a conference call with analysts Monday, Huang also pledged to “protect the confidentiality” of any information that vendors share with Arm to build products that could potentially compete with Nvidia.
The boards of Nvidia, Arm and SoftBank have all approved the deal, which is expected to close in roughly 18 months. The deal will likely face heavy regulatory resistance around the world, given the tensions between the United States and China over leadership in semiconductors and other areas, including artificial intelligence. The deal is subject to regulatory reviews in the US, China, the European Union and United Kingdom. Arm is headquartered in Cambridge, England.
This is a developing story. Check back for more updates and insights.