Legal challenge confirms logic of Nvidia megaproject

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Sometimes the harshest criticism of a merger is its best defense. This is the case with chipmaker Nvidia’s attempt to buy Arm, an acquisition for which the United States Federal Trade Commission (FTC) has filed a blockade complaint. The inflated deal, largely equity-based, significantly undermined financial logic. The regulator’s assertion, however, provides a useful reminder of the strategic rationale for owning the so-called semiconductor Switzerland.

Nvidia makes processors capable of chewing up large volumes of data in parallel using simple operations. This technology is becoming increasingly important for data centers, where it powers machine learning algorithms. In this case, Nvidia’s chips are complementary to traditional computer processors made by Intel, Advanced Micro Devices (AMD) and others. Arm, on the other hand, threatens to relocate those circuits altogether.

Unlike Nvidia, UK-based Arm does not manufacture its own chips, but concedes its designs to other companies who use them as the basis for their processors, a position that has earned it a reputation for neutrality within the industry. industry. . Arm’s licensees are increasingly encroaching on Intel and AMD, with Amazon offering its own Arm-based data center chips.

The deal, valued at around $ 40 billion in cash and stock when it was unveiled in September 2020, faces opposition from major Arm’s intellectual property licensees, including Apple and chipmakers. rivals Qualcomm and AMD, according to media reports. Chipmakers Broadcom, MediaTek and Marvell support it, according to Nvidia.

The theory behind the acquisition is that it will give Nvidia a foothold in the two main upstream technologies, giving it better access to a major growth market. However, Nvidia’s shares have barely budged on the news that the FTC wants to prevent the deal. It’s an indication that the 150% rise in Nvidia’s share price in the roughly 14 months since the deal was unveiled – which took the purchase’s valuation from $ 40 billion to around $ 75 billion. 000 dollars. million euros – has little to do with expectations of promising synergies, and that investors aren’t fazed by the possibility that it collapses.

Antitrust sees it differently. Their complaint identifies three product markets in which they believe the combined company has excessive power. Two of them are related to data centers. Under the agreement with Arm and its majority owner, SoftBank, Nvidia is legally bound to argue in defense of the agreement. At least the FTC, in a way, is claiming that there is something worth fighting for.


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