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'We gave it our best shot' Nvidia CEO tells Wall Street after failed Arm deal

GPU giant will just have to get by with a mere $10bn profit

If Nvidia is a little glum about its failed Arm merger, it has nearly 10 billion reasons to be cheerful: the GPU giant's profit from the past 12 months reached $9.75bn, up 125 per cent on the year-before period.

The chip goliath also disclosed in its fourth-quarter financial results on Wednesday that it will write off $1.36bn as a result walking away from the acquisition. This operating expense will be accounted for in the first quarter of Nvidia's fiscal 2023, which began on February 1.

Back in 2020, when Nvidia announced its desire to buy Arm, Nvidia promised Arm's parent Softbank a $2bn package up front to sweeten the deal. The takeover was ultimately derailed by competition watchdogs, however, so now Nvidia has to write off that arrangement with Softbank. As we reported last week, Arm's parent is expected to bag $1.25bn in breakup fees.

"The parties agreed to terminate because of significant regulatory challenges preventing the consummation of the transaction," Colette Kress, Nvidia's chief financial officer, noted [PDF] alongside the release of her company's Q4 figures this week.

In a call earlier today with Wall St analysts to discuss the quarter, CEO Jensen Huang took some time to address the failed attempt to acquire Arm.

We gave it our best shot. But the headwinds were too strong and we could not give regulators the comfort they needed to approve our deal

"We believed that would accelerate Arm's focus on high-performance CPUs and help Arm expand into new markets benefiting all foreign customers in the entire ecosystem," Huang said.

Nvidia, we're told, worked closely with Arm and Softbank in attempts to reassure regulators that Nvidia would be a worthy steward of the Arm ecosystem.

"We gave it our best shot. But the headwinds were too strong and we could not give regulators the comfort they needed to approve our deal," Huang said.

The failed $66bn takeover won't, we're told, affect Nvidia's long-term strategy, which continues to be developing hardware-accelerated computing.

"We are on track to launch our Arm-based Grace CPU, targeting giant AI and HPC workloads, in the first half of next year," Huang said, later adding that we should expect "a lot of CPU development around the Arm architecture."

Nvidia has a 20-year architectural license from Arm, which grants Nvidia "the full breadth and flexibility of options across technologies and markets" to deliver on its three-chip strategy involving CPUs, GPUs, and DPUs. What that means is, Nvidia – like Apple, AMD, Samsung, and others – has a license from Arm to create its own highly customized Arm-compatible CPU cores from scratch for whatever purpose it desires. Organizations without an architectural license have to pick and choose CPU cores from Arm's catalog.

"Whether x86 or Arm, we will use the best CPU for the job, and together with partners in the computer industry, offer the world's best computing platform to tackle the impactful challenges of our time," Huang said.

The anatomy of the deal

Nvidia's planned acquisition of UK-based Arm collapsed last week after opposition from regulators, which expressed concerns about the union potentially stifling competition. America's FTC sued in December to prevent the deal, and the British expressed national security concerns as a reason to intensify its probe of the deal. The China Antitrust Authority was also scrutinizing the specifics.

Microsoft, Qualcomm, Google, and others were concerned that Nvidia's purchase of Arm could lead to restricted access to the architecture, ecosystem, and chip designs. Arm's blueprints are licensed for components in most smartphones, tablets, and embedded and network-connected electronics, among other things, and are making their way into PCs and servers.

With the Arm merger consigned to the trash, Nvidia can move on to business as usual, which seems to be moving along just fine.

For the three months to January 31 of calendar 2022 – the fourth quarter of Nvidia's fiscal year 2022 – the company reported revenue of $7.6bn, growing by 53 per cent compared to the same quarter last year. Net profit was $3bn, up 106 per cent year-over-year.

The year-on-year increases for the quarter and fiscal year reflect higher sales of GeForce GPUs

A little under half of the quarterly revenue came from sales of gaming GPUs, which totaled $3.4bn, up by 37 per cent from the year-ago quarter. The rest was mostly data-center-grade accelerators ($3.3bn) and professional graphics products ($640m).

"The year-on-year increases for the quarter and fiscal year reflect higher sales of GeForce GPUs," Kress said.

GPUs have been in short supply with prices going up and available inventories being swiped by scalpers and crypto-miners. Nvidia claimed it was trying to push GPUs into the hands of gamers, and away from cryptocurrency mining, with its Lite Hash Rate feature to discourage mining use.

"Our GPUs are capable of cryptocurrency mining, though we have limited visibility into how much this impacts our overall GPU demand. Volatility in the cryptocurrency market including changes in the prices of cryptocurrencies or method of verifying transactions, such as proof of work or proof of stake, can impact demand for our products and our ability to accurately estimate it," Kress wrote.

For the full fiscal year, Nvidia reported revenue of $26.9bn, which was up by 61 per cent year-over-year. Net profit tallied $9.75bn, up by 125 per cent.

Nvidia is projecting first-quarter fiscal 2023 revenue to be about $8.1bn, plus or minus two per cent. That $1.36bn Arm write-off will appear as an operating expense. To put it in context, Nvidia's operating expenses for its fourth quarter were $2bn, already up 23 per cent year on year. ®

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