How chip neutrality scrapped Nvidia deal to buy Arm: QuickTech

How chip neutrality scrapped Nvidia deal to buy Arm: QuickTech

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One of the tech industry’s most influential businesses is unknown to most consumers: Arm Ltd. The UK-based company designs the core components of the chips that power nearly every smartphone on the planet. Its strategic importance is so high that when the owner SoftBank Group Corp. When it decided to sell the company to US chipmaker Nvidia Corp., it sparked outrage from Arm’s customers that killed the $40 billion deal. SoftBank’s Plan B is to sell arm shares in what could be the chip industry’s largest initial public offering ever

Arm does not own factories or produce its own chips. The company designs the original semiconductor components and licenses the blueprints to other firms for a fee based on how many are produced. The arrangement brings in around $700 million in revenue per quarter, making Arm the UK’s largest technology business. That’s still a fraction of the sales that tech giants such as Nvidia and Intel Corp. generate, and Arm has a relatively small workforce of 6,000. Yet few companies have reached so far across the tech ecosystem: Arm estimates that 70% of the world’s population uses its products on a daily basis, and that more than 200 billion chips have been made with its technology.

2. Where can I find Arm’s products?

They are used in everything from the smallest sensors to the most powerful data centers Amazon.com Inc., Samsung Electronics Co. and Apple Inc. is among Arm’s most important customers Arm’s instruction set — the basic code used by software to communicate with semiconductors — is in billions of devices, and the effort required to switch to another company’s code would be enormous. Devices that operate on batteries require chips that can pass relatively low power; Arm’s design prioritized that from the start. When smartphones came along and demanded more processing horsepower, the technology evolved into more computer-like chips. About 1.4 billion of these pocket computers are sold each year, with more than 90% using Arm. Recently, big tech names like Apple and Amazon have been looking to offer their own chips. Many of these new components also depend on Arm, and this is beginning to threaten Intel’s lucrative hold on high-end computing processors. Intel owns the so-called X86 instruction set, the basis of a type of processor most commonly used in computers. Advanced Micro Devices Inc. is another major user of that technology.

3. Why did Nvidia want to buy it?

So it can build on its success in graphics processors to quickly push into new areas such as data centers, artificial intelligence and automotive chips. But critics said a takeover would threaten the foundation of Arm’s success: its neutrality. Arm is used across the $550 billion semiconductor industry on the understanding that no one will gain a special advantage over its technology. SoftBank announced the sale to Nvidia in September 2020 The deal began to unravel after the US Federal Trade Commission sued to block it in December and Nvidia walked away in February.

SoftBank is expected to list a minority stake in Arm in New York by the end of March 2023. After British Prime Minister Boris Johnson personally lobbied SoftBank Chief Executive Masayoshi Son it agreed to consider a partial listing on the London Stock Exchange. In July, amid turmoil in the U.K. government following Johnson’s resignation, SoftBank temporarily paused talks about a London listing, according to people familiar with the matter.

5. What is arm really worth?

Shortly after SoftBank announced IPO plans, it set a valuation target of at least $60 billion for Arm — nearly double what it paid for the business in 2016. However, technical valuations have declined since then, forcing companies to cancel or cut listings. Get sales along the stock price line. SoftBank decided in April to sell a smaller portion of Arm than previously planned and retain a controlling stake in the hope of receiving a higher valuation for the remainder later. Supply-chain issues and concerns that the industry is making many chips in a slowing global economy make it difficult to make reliable valuations on semiconductor companies. As of February, the arm was worth about $24 billion when investors measured it against the average market capitalization-to-revenue ratio of the Philadelphia Stock Exchange Semiconductor Index. But that benchmark has since lost nearly a quarter of its value.

6. Does an IPO solve the neutrality problem?

An IPO can generally help ensure a broad and diverse investor base that Arm does not fall under a single industry player. That still may not be enough to reassure its most important customers. Qualcomm Inc. CEO Cristiano Amon said his company wants to buy a stake in the business alongside its rivals and form a consortium that would maintain Arm’s neutrality.

More stories like this are available at bloomberg.com

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