On 14 September, semiconductor giant Nvidia announced they would buy Cambridge-based Arm Holdings from SoftBank for $40bn (£31.1bn). Following the announcement, co-Founder Hermann Hauser launched the “Save Arm” campaign to ask the Government to stop the deal.
There are a lot of reasons why this is quite literally a big deal.
Because of its size and complex ownership structure, but most importantly because of the prominence of all parties involved in the semiconductor industry, the deal will likely take about 18 month in order to obtain regulatory approval in the UK, US, China and the EU, TechCrunch reported.
In order to understand why such an acquisition is potentially problematic from a competitive point of view, we must dig into Arm’s business model.
While Nvidia designs and manufactures its own chips, Arm’s core business is licensing their chip designs to third party chipmakers, which then build and distribute the processors for a wide range of tech devices, particularly smartphones.
Arm’s network of “silicon partners” – as the company calls their clients – already includes Nvidia, but also some of its main competitors like Intel, AMD and Qualcomm, as well as manufacturers of tech devices such as Apple, Lenovo and Samsung.
Because of Arm’s leading position in industries like smartphones and data centres, it could strengthen and diversify Nvidia’s business, which has been largely focused on Graphic Processing Units in the past.
However, there is a conflict of interest that some think could entirely jeopardise Arm’s business model. That is if Nvidia was ever to obtain preferential treatment over the license of Arm processors as the company’s owner, competition in the already-consolidated processor market could be harmed as a result.
As soon as rumours of the Nvidia acquisition started to circulate, Arm Co-Founder and ex-president Tudor Brown already told New Statesman that another semiconductor company owning Arm was “immediately going to upset that balance and make it very, very difficult for other companies to feel that they have equal access to the technology”.
It bears stressing that Nvidia is not just any player in the chipmaker industry, but the most valuable company in the sector, having surpassed Intel in market capitalisation last July.
Brown also lamented SoftBank’s policies in Arm’s previous acquisition, arguing that the Japanese Group “threw too much money” at Arm without seeing sufficient returns. The 2016 deal, in fact, reportedly revolved around the new Internet of Things division of Arm, which was the core target of SoftBank’s acquisition.
IoT, however, never really took off, and while the “Things” division of Arm will remain under SoftBank control with the new deal, Nvidia’s acquisition is mostly part of a SoftBank divestment effort as it looks to offset its huge losses in this year’s first quarter.
Tudor Brown wasn’t the only Arm co-Founder who expressed his disapproval for the proposed Nvidia deal: Hermann Hauser, who co-founded the company in 1983 and later founded Amadeus Capital Partners, thinks the problem is not just economic, but political.
In an open letter to PM Boris Johnson, available on the Save Arm campaign website, Hauser called for the UK government to stop the deal, or impose ‘legally binding conditions’ to the sale.
Hauser pointed out three main risks implied by the deal, if approved in its current form:
- The risk of lay offs for UK employees in Cambridge, Manchester, Belfast, Glasgow, Sheffield and Warwick, over 6,000 according to the company’s website.
- The loss of neutrality of Arm towards its licensees, along with the subsequent hijacking of their business model.
- The loss of “national economic sovereignty” by the UK.
The third of Hauser’s points raises question about the involvement of government in the dynamics of the tech industry. The co-Founder points out how the US president “weaponised technology dominance in his trade war with China”.
If Arm became a US company, being owned by Nvidia, it would become subject to local OFAC regulations. This essentially means that the American Government could possibly stop Arm from supplying companies outside of the US, including British ones.
“Surrendering UK’s most powerful trade weapon to the US—argues Hauser—is making Britain a US vassal state.” Pointing out two possible alternatives as a solution.
The first involves a sale with legally binding agreements to prevent lay offs, ensure Arm’s neutrality towards its licensees and an exemption of Britain from US OFEC rules. The last of these three points is especially relevant in the current climate, with the Government’s handling of Brexit potentially jeopardising the Trade Deal between US and UK.
The second would be “to take Arm public on the London Stock Exchange and make it a British owned company again with a Golden Share for national economic security.”
The idea of national sovereignty associated to tech was also mentioned in the press release relative to the UK Government’s investment in satellite company OneWeb.
As Hauser told the BBC, “[OneWeb was] a strong statement that the government is actually serious about industrial strategy.” Recent initiatives such as the Future Fund seem to reflect Hauser’s thinking, with the Government putting in a clear effort to participate in the success of the nation’s technology sector.
Critics pointed out that if Arm was once a public company listed on the LSE, before it was acquired by SoftBank in 2016, so if it wanted to stay independent and neutral to its licensees, the shareholders could have chosen to do so at the time.
Dr Hauser voted against the acquisition at the time, and it must be pointed out that the SoftBank deal did contain legally binding agreements that ensured the company’s independence as well as the safety of UK jobs.
Others have said that an intervention from the Government is in direct contradiction with the idea of Arm being “the Switzerland of the semiconductor industry” as he defined it in his letter to the PM.
What is certain is that in recent years we witnessed an increased tendency of governments to approach regulatory issues in the tech industry from a political rather than economical point of view. We can see clear examples of this in the US/China Trade war, which Hauser himself refers to, or in the ongoing feud between France and the US over taxation for tech giants like Google and Amazon.
While the term “weaponise” could be considered extreme, there are legitimate concerns that this trend might end up harming the tech industry itself, which risks becoming more of a deterrent for Governments than a tool for human progress.