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Nvidia's Arm Limited buy could shake mobile industry

Nvidia announced a $40 billion deal to buy chip designer Arm Limited. Now, it must convince regulators and smartphone makers that it will keep the company neutral.

Nvidia's $40 billion deal to acquire Arm Limited brings uncertainty to a mobile industry dependent on Arm for chip technology that powers most of the world's smartphones.

Nvidia announced on Sunday that it planned to acquire the chip designer from SoftBank. Arm licenses its low-power chip designs, which account for 90% of the mobile market, to the industry's biggest names. They include Apple, Samsung and Huawei.

Arm's success in the mobile market stems from its neutral business model. The company designed chips but didn't sell them. If Nvidia clears regulatory hurdles, then a chipmaker would own Arm.

That could affect Arm's relationship with Samsung and Huawei, which also sell chips. The deal would have less impact on Apple because it designs Arm-based processors only for its products.

Nvidia said it would retain Arm's neutrality and continue with its open-licensing model. Still, the promise has left some industry analysts skeptical.

Jack Gold, an analyst at J.Gold Associates, said it was unlikely that Nvidia and Arm would remain separate over the long term.

"[The Arm model] gave it tremendous momentum in licensing its [intellectual property], as licensees knew ARM would not be competing with them directly," Gold said in a report. "Now, it's going to be owned by a company that sells chips. That creates a very different dynamic."

If Nvidia cannot show neutrality to licensees, then the largest players might look for other options, Gold said. He cited Apple's decision to shift its Macs to Apple Silicon chips and away from Intel processors.

IDC also questioned whether Arm Limited could remain neutral. "The acquisition threatens the [intellectual property] business model because half of Arm's markets will be exposed to markets where Nvidia competes, creating a conflict of interest," the analyst firm said in a report to clients.

Other analysts believe Nvidia could successfully retain Arm's neutrality. Chirag Dekate, a vice president at Gartner, likened the deal to IBM's purchase of Red Hat. In that case, Red Hat customers could continue to work solely with Red Hat technology without IBM's interference.

It's going to be a bit of a 'show me' thing. It's easy to say it, [but] it's another thing to prove it.
Michael GoodmanAnalyst, Strategy Analytics

"As long as Arm is able to convince its current customers of its independence ... I think Arm can retain its base," he said.

Keeping Arm licensees on board will depend on Nvidia's actions after it completes the deal, Strategy Analytics analyst Michael Goodman said.

"It's going to be a bit of a 'show me' thing. It's easy to say it, [but] it's another thing to prove it," he said. "I think these other companies are, at a bare minimum, going to be wary."

Regulatory hurdles

Before Nvidia deals with Arm licensees, it will have to gain approval from regulators in China, the European Union, the U.K. and the U.S. Nvidia and SoftBank estimate the deal will take 18 months to complete.

The implications of Arm Limited falling under American control are as yet unclear, Gold said. With ongoing tensions between the U.S. and China, that latter could block the deal to prevent a U.S. chipmaker from selling technology to Chinese firms like Huawei. The U.S. has barred Huawei from selling 5G technology to carriers, claiming the Chinese company poses a national security threat.

Nvidia said it plans to keep Arm's intellectual property registered in the U.K. and is committed to preserving and expanding Arm's Cambridge, England, campus.

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