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FTC's legal action against NVIDIA bangs another nail in Arm deal's coffin

NVIDIA's deal looks set to go the same way as Qualcomm's NXP buyout.

A combined NVIDIA and Arm would “have the means and incentive to stifle innovative next-generation technologies, including those used to run datacenters”, the US Federal Trade Commission (FTC) warned in its December 2 legal action against the $40 billion semiconductor firm buyout – just the latest nail in what may yet prove to be the coffin of one of the biggest proposed technology acquisitions of all time.

The decision confirms that conversations between NVIDIA and the FTC over potential remedies had failed, as they had in the UK with the Competition and Markets Authority -- and is a stark reminder that chipmaker deals at this kind of scale are desperately hard to close. Just ask Qualcomm: the world’s biggest smartphone-chip maker was forced to walk away from its $44 billion takeover of Holland's NXP in 2018 after China’s State Administration for Market Regulation (SAMR) simply let the clock run out on the deadline for the deal's approval.

“The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies,” said the FTC's Holly Vedova on December 2.

The bureau's competition director added in a strongly worded statement: “Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets. This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals. The FTC’s lawsuit should send a strong signal that we will act aggressively to protect our critical infrastructure markets from illegal vertical mergers that have far-reaching and damaging effects on future innovations.”

FTC Sues over NVIDIA + Arm buyout

The court case comes just weeks after a report from the UK’s competition watchdog revealed that NVIDIA had promised to preserve Arm’s open licensing regime for just five years, with the CMA saying that “a five-year commitment falls manifestly short of the time period required to remedy the concerns identified… which are lasting in nature, and pertain to long development cycles.”

NVIDIA’s commitments would not “prevent the overall strategic direction and focus of R&D research from being directed towards NVIDIA’s needs” nor “prevent technical or other de facto restrictions on interoperability being introduced” the CMA noted, adding that it “does believe there to be a modified form of behavioural remedy sufficient to address the competition concerns.”

A NVIDIA spokesperson told The Stack in the wake of that report: “We plan on addressing the CMA’s initial views on the impact of the transaction on competition, and we will continue to work with the UK government to resolve its concerns. The Phase 2 process will enable us to demonstrate that the transaction will help to accelerate Arm and boost competition and innovation, including in the UK.”

The company had noted on its last earnings call that "regulators at the FTC have expressed concerns regarding the transaction and we are engaged in discussions with them regarding remedies to address those concerns. The transactions has been under review by China Antitrust Authority, pending the formal case initiation. Regulators in the U.K. and the EU have declined to approve the transaction in Phase 1 of their reviews on competition concerns. In the U.K., they have also voiced national security concerns. We have begun the Phase 2 process in the EU and U.K. jurisdictions. Despite these concerns and those raised by some Arm licensees, we continue to believe in the merits and the benefits of the acquisition to Arm, to its licensees and to the industry."

When it comes China’s regulators, their decision about Nvidia’s acquisition of Arm is "further complicated by international trade conflicts, international political tensions, and the bizarre saga at Arm’s joint venture in China" as EE Times's Brian Santo notes. "Recall that Arm tried to remove the JV’s CEO Allen Wu, but Wu took physical control of the operation and is still resisting any direction from Arm (the minority stakeholder in the venture)."

ARM’s IP continues to grow roots across the data centre and cloud world meanwhile. (As the CMA noted in December 2021: "Arm’s CPU IP is key for Datacentre CPU suppliers without access to the x86 ISA (as used by Intel or AMD) or to in-house solutions. This includes cloud service providers which are driving growth in the Datacentre CPU market. Sales of Arm-based Datacentre CPUs have grown rapidly in recent years and are projected to continue this growth, thus exerting pressure on Intel and AMD’s Datacentre CPUs. The CMA found the constraint posed by current or future alternative suppliers of CPU IP to third parties (such as RISC-V and MIPS) is weak, and that there are significant barriers to switching CPU IP licensor.")

AWS for example launched its the first generation AWS-designed Graviton processor in late 2018 and is now on a gen-three processor, which will power its soon-to-launch C7g cloud instances. These have helped move on associations of Arm designs with lower-powered mobile computing chipsets; AWS for example is firmly targeting compute-intensive workloads like HPC, batch processing, electronic design automation (EDA), media encoding, scientific modeling, ad serving, distributed analytics, and CPU-based machine learning inferencing.

Dell’s blockbuster $67 billion EMC Corporation buyout in 2015 set the bar for such mega-deals, but US GPU, compute and networking specialist NVIDIA’s proposed buyout of UK-based Arm tops Avago’s $37 Broadcom buyout (also in 2015) for sheer scale. As the FTC case reaffirms however, opposition to it is mounting.