Qualcomm rejects the $ 40 billion acquisition of Nvidia


The front of the Qualcomm office in San Jose, California.

Justin Sullivan | Getty Images News | Getty Images

American chipmaker Qualcomm has told regulators around the world that it is opposed to Nvidia’s acquisition of British chip designer Arm, worth $ 40 billion, according to sources familiar with the matter.

The company has notified the Federal Trade Commission, the European Commission, the UK Competition and Markets Authority and the Chinese State Administration of Market Regulation that it has concerns about its purchase of Nvidia Arm, currently owned by Japanese tech giant SoftBank.

The FTC’s investigation has moved into a “second phase” and the US regulator has asked SoftBank, Nvidia and Arm to provide more information, according to two sources familiar with the deal but wanting to remain anonymous due to the private nature of it the discussions.

Answering the request for information will likely take many months as several large documents need to be created, the sources say. In the second phase, the FTC will also work with other companies that may have relevant information that could help them make decisions, they added.

The European Commission, the EU executive and the CMA declined to comment, while the FTC and SAMR did not immediately respond to a CNBC request for comment.

Qualcomm, which refused to comment on the story, reached out to regulators believing the sources said they will play an important role in deciding whether or not to close the deal. It has spoken to representatives who focus on antitrust law and mergers.

Nvidia told CNBC it was confident that regulators will see the benefits of the acquisition. Arm declined to comment and SoftBank did not immediately respond to a CNBC request for comment.

“You are seeing a very thorough, very painful, and very long investigation,” one of the sources told CNBC.

The arm wrestling

Arm was spun off from an early computer company called Acorn Computers in 1990. The company’s energy-efficient chip architectures are used in 95% of smartphones in the world and 95% of chips developed in China.

The company licenses its chip designs to more than 500 companies who use them to make their own chips.

Qualcomm has spoken out against the acquisition of Nvidia because sources say there is a very high risk of Nvidia becoming a gatekeeper of Arm’s technology and preventing other chipmakers from taking advantage of Arm’s intellectual property. It’s not about Nvidia being able to take full advantage of the acquisition without breaking certain boundaries that people are concerned about, they said.

Announcing the acquisition, Nvidia and Arm said the deal would create “the world’s leading computing company for the AI ​​age.” The duo have pledged to keep Arm’s Cambridge, UK headquarters and invest heavily in the business.

“This combination has tremendous benefits for both companies, our customers and the industry,” said Jensen Huang, CEO of Nvidia, when the deal was announced.

However, five industry sources, including two tech investors, have told CNBC that they believe the deal has a very high likelihood of being blocked by one or more regulators.

“Ultimately, the decision on whether or not this deal is anti-competitive is based on a very simple idea: Arm is an enabler for competition,” the same source told CNBC. “It enables companies to compete. Whether you are MediaTek, Amazon Web Services, Qualcomm or NXP. Any company – regardless of your research and development (R&D) budget – can license Arm and own Arm-based CPU. This is a unique model. “

The source added, “The incentive (for Arm) is to share their technology with as many people as possible, and the only thing they can get for it is royalties. This creates trust between Arm and its licensees. Those licensees pass on information to arm that (can help) make better products so that the next generation (of products) can generate more revenue. It’s a virtuous cycle. “

Other objectors

Across the Atlantic, the AI ​​chip start-up Graphcore has raised concerns with the UK competition and market authorities. Nigel Toon, CEO of Graphcore, told CNBC in December that Graphcore considers the deal to be anti-competitive.

“There is a danger that other companies will be closed or restricted from accessing the cutting-edge CPU processor designs that are so important in the entire technology world, from data centers to mobile devices to cars and all kinds of embedded devices,” he said.

Local chipmakers in China, including Huawei, have urged Beijing to block the deal over fears that if Arm gets into the hands of a US company, they could be put at a disadvantage.

An Nvidia spokesperson told CNBC, “We are confident that as the review process progresses, both regulators and customers will see the benefits of our plan to continue Arm’s open licensing model and ensure a transparent, collaborative relationship with Arm’s licensees . Our Vision for Arm will help all Arm licensees grow their businesses and expand into new markets. “