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ARM, the chip designer owned by the Japanese telecommunication giant SoftBank, has become a hot commodity lately as major players in the silicon sphere continue to contemplate its acquisition.
We reported in early August that SoftBank representatives have purportedly approached NVIDIA (NASDAQ:NVDA), TSMC (NYSE:TSM), Foxconn, Apple (NASDAQ:AAPL), Qualcomm (NASDAQ:QCOM), and Samsung for acquiring ARM. For SoftBank, an outright sale of ARM is just one option. Other options include a possible relisting of the chip designer or a consortium of major silicon players buying significant stakes in the company. Interestingly, subsequent reports indicated that Apple and Samsung have apparently stepped away from the negotiating table, leaving NVIDIA at the head of the pack, followed by TSMC and Foxconn.
Well, as per the exclusive reporting by UK’s Evening Standard, NVIDIA is now entering final talks for acquiring ARM, with a potential deal emerging before the end of the current summer season. According to the report, SoftBank’s CEO Masayoshi Son is demanding a price as high as £40 billion ($52 billion) for ARM. This translates to a premium of around $20 billion relative to the $32 billion that SoftBank paid in 2016 to acquire ARM.
As a refresher, ARM designs silicon chips and licenses instruction sets that govern how chips communicate. Moreover, ARM’s intellectual property – including the company's Reduced Instruction Set Computing (RISC) Instruction Set Architecture (ISA) – is utilized by Apple, Qualcomm, Samsung, Huawei, etc. for their smartphone chips, thereby, corresponding to a market coverage of around 90 percent.
It does make sense for NVIDIA to pursue a takeover of ARM. After all, SoftBank has been a major investor in NVIDIA, having amassed a $4 billion stake in 2017. Nonetheless, SoftBank’s gargantuan $100 billion Vision Fund disclosed in early 2019 that the entirety of its NVIDIA stake had been liquidated.
If NVIDIA succeeds in taking over ARM, it would constitute one of the chip industry’s largest acquisitions. Nonetheless, the way forward is littered with obstructions and complications. Along with the usual hurdles associated with a deal of such magnitude, regulatory glare may prove to be a stumbling block. The British government may take a dim view of this development, particularly if the deal entails moving ARM headquarters out of the UK. Bear in mind that ARM provided a commitment to retain its UK headquarter and to increase its workforce as part of the 2016 deal with SoftBank. Finally, the chip designer's existing customers may try to block the acquisition or demand assurances regarding equal access to ARM’s technology.
NVIDIA will benefit from synergies emerging out of its acquisition of ARM should the deal achieve closure. The development would also mark a continuation of the recent acquisition spree by the maker of GPU cards. As a refresher, NVIDIA officially completed its acquisition of Israel’s Mellanox Technologies on the 27th of April, capping an arduous process that spanned over 13 months. Moreover, on the 4th of May, NVIDIA declared that it was buying the open networking software company, Cumulus Networks, for an undisclosed amount. NVIDIA shares have risen around 95 percent year to date, thereby, eclipsing Intel’s market capitalization by $76.54 billion.
