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Nvidia's acquisition of chip designer Arm Ltd. is off after facing mounting regulatory pressure from the U.S., U.K., European Union and even China.
SoftBank Group Corp. said Tuesday it was calling off the $40 billion deal because of "significant regulatory challenges." Softbank, which has owned U.K.-based Arm since 2016, is instead preparing to take the company public by March 31, 2023.
The acquisition, announced in September 2020, quickly faced review from the U.K. Competition and Markets Authority and the U.S. Federal Trade Commission (FTC), among other governments.
Companies including Google, Microsoft and Qualcomm also voiced concerns as Arm customers. If the acquisition had gone through, it would have given Nvidia control of a company whose chip designs are used by those major companies and others around the globe, including Amazon, Huawei and Apple.
When mergers and acquisitions cross geographic boundaries, regulators apply more scrutiny, said Glenn O'Donnell, research director at Forrester. In the U.S., President Joe Biden has pushed for greater crackdowns on anticompetitive deals, and the FTC has responded with enhanced oversight as well as a review of current merger guidelines.
In this case, the U.S. applied pressure to the deal, with the FTC suing to block the merger in December 2021. Meanwhile, other governments including the U.K. and European Union applied even more pressure than the U.S., O'Donnell said. As the chip shortage continues to be a problem, there is a growing focus on localizing chip production, and the U.K. wanted to keep one of the world's top chip design companies in house.
"Political desires to foster technology on their home turf are the major drivers for this new atmosphere," O'Donnell said. "But recent supply chain vulnerabilities obviate a need to bring better geographic balance to the supply."
Chip shortage led to greater scrutiny
Supply chain vulnerabilities and the hit to semiconductor chip production as a result of the COVID-19 pandemic has caused countries to become more sensitive about the global balance of production, O'Donnell said.
Currently, the semiconductor manufacturing market is concentrated in Asia, where roughly 80% of chips are made. Both the U.S. and EU have increased their efforts to bring semiconductor chip manufacturing back to their shores, which brought more pressure to the Nvidia-Arm acquisition, he said.
Glenn O'Donnellanalyst, Forrester
"I see the collapse of this deal as a win for the U.K., where Arm is based, and for competitors like Intel and AMD," O'Donnell said.
The deal was ultimately doomed because it concerned access to chip designs used in everything from cell phones to data centers, said Alan Pelz-Sharpe, founder of analyst firm Deep Analysis. He said there was also concern Nvidia could restrict access to those designs.
Heavy regulatory scrutiny affected this acquisition, but Pelz-Sharpe said it's debatable if this level of scrutiny will affect future mega deals.
"How much of a bellwether this is remains to be seen," he said. "It may just be a one-off, but there is a widening gap between regulators and their concerns on either side of the Atlantic, so this could embolden [similar] challenges in the future."
Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.