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Nvidia Arm deal another step closer to -- death?

Negotiations of the long-awaited Nvidia acquisition of Arm Ltd. have come to a halt with rumors of Nvidia telling partners they can't come to agreement on a deal.

Nvidia is ready to step back from its proposed purchase of Arm Ltd. from Softbank Group Corp. after months of negotiations because it has made no progress in closing the $40 billion deal, according to a published report.

Nvidia initially disclosed plans to acquire Arm back in September 2020 and said the deal would close within 18 months. But regulatory hurdles slowed progress on the deal, and Nvidia recently began telling its partners that it "doesn't expect the transaction to close," one unnamed source told Bloomberg. In a related move, Softbank is accelerating preparations for an Arm IPO as an alternative to Nvidia's proposed takeover, according to the report.

Contacted for comment about the report, Nvidia issued a statement essentially stating that the company stands by its belief that its proposed deal is good for not only Arm and Nvidia's competitive prospects, but also for the chip industry in general.

"We continue to hold the views expressed in detail in our latest regulatory filings -- that this transaction provides an opportunity to accelerate Arm and boost competition and innovation," the statement read.

A spokesperson for Arm responded to the report by simply saying any questions regarding the deal falling through "should be directed to Nvidia."

Objections to the deal were raised immediately, most notably by U.K. competitors, who last November demanded the Competition and Markets Authority conduct an investigation.

That was followed in early December by the Federal Trade Commission, which sued to block the deal because it "threatened fair competition of a technology that powers computers and technologies essential to our modern economy and society."

Some analysts are not surprised by the report, but added that they believe the deal would in fact benefit the chip industry because it would serve to promote better competition.

"Nvidia would have pumped the dollars into the market and would have helped smaller competitors become more successful," said Dan Newman, principal analyst and founding partner at Futurum Research. "Right now, if you want to build something based on Arm, the only companies doing it and succeeding are the monoliths like Microsoft, AWS and Apple."

It might be the right thing to do, but it doesn't need to die purely from an antitrust standpoint. We need competition.
Dan NewmanPrincipal analyst and founding partner at Futurum Research Company

Newman added that perhaps the timing is right for the proposed deal to die, given the strong antitrust bent of the current administration in Washington and the U.K.

"It might be the right thing to do at this point, but it doesn't need to die purely from an antitrust standpoint," Newman said. "We need competition out there, and I think we are seeing it from partners like Qualcomm and Microsoft. But It might prove to be too difficult a deal to get done."

Patrick Moorhead, CEO and chief analyst at Moor Insights & Strategy, cautioned that the report could prove to be just rumors but added he wouldn't be surprised if it's true. He said he, too, believes an Nvidia-Arm combination would bring "a lot more competition to the PC and server markets," but wonders now about Arm's financial strength.

"What I'm trying to piece together is how does Arm gets enough capitalization to invest, and at the same rate of research and development," Moorhead said.

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