Nvidia’s Rivals Gang Up Against its Acquisition of ARM

Nvidia’s rivals are riling up against its acquisition of Arm because the deal will harm competition in an area of the industry that is vital to their businesses.

Alphabet Inc.’s Google, Microsoft Corp. and Qualcomm Inc. are among companies worried about the $40 billion deal and are urging antitrust officials to intervene. Bloomberg made the report citing people familiar with the matter who spoke on anonymity because they are not authorized to speak.

The acquisition would give Nvidia control over a critical supplier that licenses essential chip technology to the likes of Apple Inc., Intel Corp., Samsung Electronics Co., Amazon.com Inc. and China’s Huawei Technologies Co.

Qualcomm told the Federal Trade Commission, the European Commission, the U.K.’s Competition and Markets Authority and China’s State Administration for Market Regulation that it has concerns about Nvidia buying Arm, which is currently owned by Japanese tech giant SoftBank.

U.K.-based Arm is known as the Switzerland of the industry because it licenses chip designs and related software code to all comers, rather than competing against semiconductor companies.

The FTC’s investigation has moved to a “second phase” and the U.S. regulator has asked SoftBank, Nvidia and Arm to provide it with more information, according to two sources who are familiar with the deal.

Complying with the information request is likely to take many months as several large documents will need to be produced, the sources said. During the second phase, the FTC will also engage with other companies who may have relevant information that could help it to make a decision, they added.

The concern is that if Nvidia owns Arm, it could limit rivals’ access to the technology or raise the cost of access.

Nvidia has argued that the purchase price alone means it has no incentive to mess with that neutrality but some rivals and Arm customers are unconvinced.

ARM’s customers, including Apple, Samsung, Qualcomm, Advanced Micro Devices and Intel were worried when the deal began last year and needed assurance that a new owner would continue providing equal access to ARM’s instruction set. It was the concern that led to SoftBank buying ARM the last time it went up for sale, because it is a neutral company.

“As we proceed through the review process, we’re confident that 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,” an Nvidia spokesperson said in a statement. “Our vision for Arm will help all Arm licensees grow their businesses and expand into new markets.”

The opposition means that before the deal can close, Nvidia must get through a long review process by antitrust officials in the U.S., U.K., European Union and China. Bloomberg reported that Government agencies globally are in the process of reaching out to those they believe may be affected by the transaction.

The report explained that the changing leadership of the FTC could make winning approval tougher for Nvidia. The commission is generally split 2-2 along party lines at the moment, with Democratic commissioner Rebecca Kelly Slaughter holding the acting chair position. Power will shift to the Democrats when U.S. President Joe Biden picks two candidates to fill an open seat and the seat held by Commissioner Rohit Chopra, who has been nominated to take over the Consumer Financial Protection Bureau.

Deals like Nvidia’s acquisition of Arm, known as vertical mergers, are typically seen as less worrisome in the eyes of antitrust enforcers because the companies don’t compete head to head. But that view has come under fire from advocates of more aggressive antitrust enforcement who say regulators have downplayed the competitive harm from such deals, Bloomberg said.

Slaughter’s elevation signals a tougher approval process for vertical deals. Before taking over the agency, Slaughter criticized new guidelines issued last year by the FTC and the Justice Department outlining how the agencies would evaluate vertical deals. She said the guidelines overemphasize the potential benefits of such mergers and are “inexplicably mute” about the harms.

In December, Slaughter and Chopra said companies should no longer rely on the guidelines as an indication of how the FTC will police vertical deals.

“Moving forward, we need to aggressively enforce against the harms of vertical mergers,” they wrote. “We look forward to turning the page on the era of lax oversight and to beginning to investigate, analyze, and enforce the antitrust laws against vertical mergers with vigor.”

Qualcomm contacted the regulators because it thinks they will play a significant role in determining whether the deal gets completed or not, according to the people with the knowledge of the matter.

Qualcomm has opposed the Nvidia takeover because it thinks there’s a very high risk that Nvidia could become a gatekeeper of Arm’s technology and prevent other chipmakers from using Arm’s intellectual property, according to sources. It doesn’t think Nvidia will be able to fully capitalize on the acquisition without crossing certain lines that people are worried about, the people said.

With this level of opposition, analysts said NVidia’s acquisition of Arm may likely be halted.

A groundswell of opposition from large tech companies may make it difficult to win approval, delay the process or force concessions that change the value of Arm to Nvidia. This is also a risk for SoftBank, the Japanese conglomerate has been trying to sell some assets to pay down debt and buy back stock.