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Nvidia and Arm deal collapses, causing chaos

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Nvidia’s landmark attempt to acquire Arm for a huge $40 billion sum has ended. The massive deal would have seen Nvidia taking a top spot in the industry, and making them able to effectively control the supply chain and licensing of a core component in billions of devices. Announced back in Sept. 2020, the deal shook the entire industry, and was bound for regulatory hurdles. Although it’s hard to say anyone saw the amount of drama that did unfold coming.

Nvidia stepped away from the Arm acquisition earlier this month after things turned south. They cited “significant regulatory challenges,” according to a press release sent by the company. The legal dispute with the US Federal Trade Commission against Nvidia was just the start of the legal troubles. The deal was allegedly worth more than $40 billion as Nvidia sought to buy Arm from SoftBank Group. The move would have put Nvidia in a prime position to prevent other companies from competing as effectively. Although after Chinese regulators got involved, there was even less hope of the deal going through.

The deal has caused a few ruffles for Nvidia. $1.25 billion prepaid by Nvidia for the deal will be retained by Arm. Also, Nvidia will retain its 20-year Arm license.

Arm and Nvidia

Image Credit: Vishnu Mohanan via Unsplash

And in the fallout, drama abounds. Arm CEO Allen Wu has found himself in hot water once again, after being shamed over his handling of the company. Arm has accused Wu of misusing company money to finance his ongoing legal battles. He remains CEO of Arm China despite the pushback and his ouster.

In an interview with JW Insights (thanks Tom’s Hardware), Wu had something to say. And what he had to say wasn’t kind. “Most industry players believe that it is most beneficial for industrial development if Arm remains an independent company,” said Wu of the failed acquisition. “And thus, the regulatory authorities will get tighter and tighter, particularly on large chip acquisitions, so I think large-scale M&A (mergers and acquisitions) will be more and more difficult.”

The tone here suggests that there’s going to be a lot more skepticism in the industry around mega-mergers such as the one Nvidia and Arm just attempted.  The proliferation of Arm devices that power chipsets for phones, routers and more have positioned the company as a huge player. And it’s likely that any such moves in the future are doomed to fail.

This same power within the tech industry may have been the underlying cause for the problems both companies are now facing. Companies all over the globe have to pay to use the tech, and that causes problems when one company has a dominant position. The dominance of Arm-based technology already pushed Apple into a tough spot as they have worked to make the chips a core part of some product lines. Apple silicon has been a huge leap forward for the company in many areas, and they had to involve Arm in the production. Many other companies are scrambling to find ways to avoid having to sacrifice too much to use the technology. So there was bound to be pushback from both the industry and regulators in response to Nvidia’s deal.

On the other hand, there’s the destructive competition to consider. This idea refers to a concept observed best in the collapse of the US railway network. In the heyday of American railroads, there was a total glut of individual railroads all vying for ever-decreasing traffic. As trucking became a dominant part of the transit system, train lines had to do anything they could to get freight and passengers. The national race to the bottom in pricing made it so many of these companies were literally never making a profit. And in the incredibly complex transit industry, there are a lot of hurdles to jump over. It’s entirely possible that part of the pushback on the Arm deal was due to fears over something like this happening with chips and the underlying tech.

But it’s not just toxic competition that’s the problem. Wu’s handling of the company definitely played a factor. It’s basically impossible to audit the company financially thanks to how badly mangled the finances became during his tenure. All in all, a very bad time to be involved with these two companies.

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