Nvidia’s Arm deal could mean a real challenge for Intel and AMD, but faces opposition

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Nvidia Corp.’s daring $ 40 billion deal to buy chip designer Arm Holdings could create a major new threat for Intel Corp. and Advanced Micro Devices Inc. in the data center market, but the deal will face two major hurdles along the way. .

Nvidia NVDA,
+ 5,81% NVDA,
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NVDA,
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– best known for its graphics chips for gamers and servers – said on Sunday it had struck a deal with Softbank Group Corp. 9984,
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to purchase Arm Holdings Plc. in a transaction valued at $ 40 billion, in a mix of cash, stocks and potential future payments. Softbank bought the Cambridge, UK-based chip designer in 2017 for more than $ 32 billion, but has come under pressure from activist investor Elliott Management to sell certain assets, its balance sheet and portfolio of securities. technologies that were hit hard after the collapse. in WeWork’s value, one of its big investments.

The deal could make Nvidia a significant direct competitor to Intel, whose market value it first passed on earlier this year, and AMD, the two leading developers of PC and server-based microprocessors. Intel’s x86 architecture. Until now, Nvidia and its graphics chips were complementary to their families of microprocessors, but competitive with their graphics chips. A push into microprocessors, with Arm’s ownership by Nvidia and its various RISC (Red Instruction Set Computing) architectures, could be the first real challenge for its neighbors in Silicon Valley. But Nvidia may face challenges from regulators and competitors who have become customers to achieve this.

Eric Ross, analyst at Cascend Securities, said in a note that if the deal goes through, “the company that should be the most worried at Intel” because Nvidia will be grabbing a central processing unit (CPU) core for the data center, in addition to the forays it has made with its graphics chips into this market.

“Additional creative designs incorporating the best of processors and GPUs into a single processor could be beneficial,” he said, adding, however, that the deal surely encountered obstacles from many government regulators – not just government regulators. United States, but also from China.

Beyond regulatory hurdles, Nvidia could face an outcry from Arm licensees, many of whom are competitors of Nvidia. Arm is a unique chip company because it only licenses its designs to a wide range of companies, where they are mainly used in low power devices such as smartphones, tablets and portable devices.

Arm has over 500 licensees for its technology, and these licensees can refine designs and customize them for their own products and customers. Some of Arm’s biggest customers include Huawei Technologies, Qualcomm Inc. QCOM,
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Broadcom Inc. AVGO,
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, Apple Inc. AAPL,
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Samsung Electronics 005930,
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, Intel Corp. INTC,
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et AMD AMD,
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MarketWatch has reached out to several of the larger Arm licensees for comment, but so far only Intel has responded, saying it declined to comment.

Bernstein Research analyst Stacy Rasgon asked Nvidia executives for more details on how they would keep the open licensing model during a business conference call Monday morning. Intimated, but not directly stated, in his question was the concern that some customers might not be comfortable with Arm owned by a competitor.

“We would protect the confidential information of all of our customers as we do today and as Arm does today,” responded Nvidia co-founder and CEO Jensen Huang. “None of us really know what customers are doing with our technology. And of course, we work with all the companies in the world, just like Arm works with all the IT companies in the world. We protect everyone’s privacy. ”

Rasgon said in a note to clients that if Nvidia can be successful, “Nvidia’s dominance will be extended to virtually all important compute areas that have undeniable strategic value, giving the company the opportunity to potentially differentiate itself along the way. this route by property so that it could not if they were mere licensees [of Arm]. »

Evercore ISI Securities said Nvidia will help extend the Arm architecture even further into servers and network infrastructure and integrated artificial intelligence markets, but analysts remain concerned about regulatory approval.

Nvidia executives told analysts on a conference call that they expected regulatory approval to take around 18 months, which is longer than the average approval cycle. In response to a question about China, Huang said the issue with export controls was not the ownership of Arm’s intellectual property, but the origin of the intellectual property, which was created in the UK. .

“Arm’s intellectual property was created, created, developed over three decades in Cambridge,” said Huang. “And so the amount of code, the amount of innovation is measured in thousands of human years. And so the intellectual property will remain mostly in the UK, Arm’s headquarters will be in the UK ”

Even with this optimism, Rasgon noted that Arm’s licensees are likely to “take up arms.”

“There would appear to be a risk that ownership of Nvidia will harm the current value of the asset,” he said.

Huang and Co. may be facing one of Nvidia’s toughest battles yet, but if they win over Arm’s regulators and customers, the company has a chance of being the new Chip King. of Silicon Valley over a pair of long-standing rivals.

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