Britain's Competition and Markets Authority (CMA) has thrown a spanner into Nvidia's buyout of Arm, saying the deal presented "significant competition concerns" in a report published today.
The CMA's July report highlighted the danger of Nvidia "foreclosing" Arm's intellectual property and lessening competition for industry-critical data centre CPUs and GPUs, as well as automotive system-on-chip products.
Digital Secretary Oliver Dowden triggered the CMA review in April after issuing a Public Interest Intervention Notice against the US chipmaker's $40bn takeover of Cambridge-headquartered Arm, which is owned by Japan's Softbank.
Arm chief exec Simon Segars said in early July, before the CMA reported to government, that "ill-informed speculation" lay behind public fears of anti-competitive behaviour in the wake of a merger.
"These assumptions couldn't be further from the truth," he said, also pooh-poohing the idea that Arm should have gone public instead of agreeing to sell itself out to Nvidia.
Today's CMA report dispels the idea that competition concerns were baseless. The regulator found:
Arm controls an important input and has market power in the supply of CPU IP for Datacentre CPUs and SmartNICs. As the longstanding leading supplier with over 90% share of supply, NVIDIA also has market power in the supply of Datacentre GPUs. The evidence indicates the Merged Entity could modify the interoperability between Datacentre GPUs and Arm-based Datacentre CPUs and/or SmartNICs, to enhance NVIDIA's products and undermine the operability of rivals' products, so as to de facto 'bundle' the supply of these products.
Nvidia's earnings call on Wednesday night for its Q2 2022 appeared to presage the move, with CFO Colette Kress telling investors: "We are working through the regulatory process, although some Arm licensees have expressed concerns and objected to the transaction. And discussions with regulators are taking longer than initially thought. We are confident in the deal and that regulators should recognize the benefits of the acquisition to Arm, its licensees and the industry."
Richard Holway of TechMarketView said in commentary today focusing on the US chipmaker's latest financials:
Nvidia also admitted that it might have problems hitting the 18 month timescale to secure Arm – the delay down to scrutiny from regulators around the world. Indeed the UK authorities might well put a stop to the acquisition on security grounds. Of course the acquisition of Arm by Softbank five years ago should have been prevented on these grounds. The horse has already bolted!
Holway also pointed out that Chinese vendors have a lot at stake with Arm's ownership, the company being one of the few global designers that isn't controlled by the US. Regulators in China are thought to be one of the greater obstacles to the buyout, though so far not much has emerged on their thinking.
Nvidia told The Register: "We look forward to the opportunity to address the CMA's initial views and resolve any concerns the Government may have. We remain confident that this transaction will be beneficial to Arm, its licensees, competition, and the UK."
Arm, meanwhile, declined to comment.
- Arm chief hits out at 'ill-informed speculation' over proposed Nvidia buyout
- UK digital secretary Oliver Dowden starts national security probe into proposed Arm-Nvidia merger
- Arm freezes hiring until Nvidia takeover, cancels everyone's 'wellbeing' allowance
The CMA received a significant number of detailed and reasoned concerns from customers and competitors relating to these "theories of harm."
The deal will now go to a Phase 2 investigation, as explained by law firm Ashurst here.
British policy towards foreign buyouts of tech companies has become a little confused over the last year. Just this week the US acquisition of Ultra Electronics was paused over competition concerns while the buyout of Newport Wafer Fab by the Chinese was greenlit with nary a murmur from Whitehall. ®