NVIDIA and Arm have had a long courtship. We first covered the deal in September of 2020 in NVIDIA to Acquire Arm in Major Shift. After well over a year of not getting regulatory approval, the deal is now officially off.
NVIDIA – Arm Merger Canned and a New Path Forward
This is one of those deals that there were certainly two camps on. Many said there would be no way it would go through. Personally, I thought that given a different administration and political atmosphere the deal would have gone through. When I took antitrust in law school, this deal would have gone through. Ultimately what doomed the deal was the political pressure from various governments.
The path forward for Arm is interesting. Rene Haas is the new CEO of Arm following the failed acquisition. Since Arm is currently owned by SoftBank in Japan, the next step will be to IPO the company to provide an exit for SoftBank. SoftBank will reap a huge windfall and a large part of that is because the markets, in general, have pushed valuations much higher over the past few years. Before going IPO, Arm may need to address its China operation especially since China is such a large market for Arm.
For NVIDIA, it can still license Arm, but it is now a chip provider without a CPU architecture. Its rivals Intel and AMD have x86 and have Arm licenses. Apple uses its Arm cores with its GPU IP pushing NVIDIA out of that ecosystem. RISC-V is set as a potential disruptor in some markets to Arm’s dominance, but Intel just joined RISC-V International and is aggressively focused on that ecosystem building its foundry business. To be clear, NVIDIA does not need a CPU architecture, and it has become an extremely valuable company without one.
The bigger question is what happens next. With the UK pushing against the acquisition of the Japanese-owned Arm that will become something that the US may very well use for the next UK company acquisition. Likewise, China just gave the go-ahead for AMD-Xilinx, but it never gave approval for this deal.
Going forward, we expect NVIDIA to push hard on extracting software revenue from the AI ecosystem. MLPerf has taught us that NVIDIA has competition, but a virtual monopoly on a large swath of the AI hardware space. The company’s direction lately has been to introduce software support and features for the enterprise to further increase revenue, at a high margin, without having to ship more GPUs. That is NVIDIA’s key growth driver now as that software push is akin to “Wintel” in the late 90’s, except NVIDIA has both the software and the hardware.