Hermann Hauser: Three reasons why the sale of Arm to Nvidia would be a disaster
Hermann Hauser has said the potential sale of Arm Holdings to Nvidia would be a disaster for Cambridge and the UK - and would fuel the trade war between the US and China.
He has called on the UK government to intervene and revealed that he had spoken to the London Stock Exchange about the idea of taking Arm public.
Talking to the Cambridge Independent from his farm in New Zealand, where he spends the UK winters and has remained during the coronavirus pandemic, Dr Hauser said the country’s technology sovereignty is at stake in the proposed deal.
It was in 1990 that he spun out the Cambridge-based chip designer from Acorn.
Today, the company is behind the technology used in virtually all smartphones.
It was acquired in 2016 for $32billion by Japanese conglomerate Softbank, which posted a $12.7billion loss for the year ending March 31 - its first loss in 15 years.
Softbank is understood to be in talks about selling on Arm to US-based Nvidia , which last month took over Intel as the world’s most valuable chip company - and now boasts a market capitalisation that has soared over £300billion.
“It will be a disaster for three main reasons,” said Dr Hauser. “The most pertinent to Cambridge is the job losses that will inevitably go with moving headquarters to Silicon Valley.
“Nvidia, of course, bought Icera from Bristol in 2011 and there were about 300-plus people.”
That $367million acquisition was intended to help Nvidia engage with the smartphone revolution. Instead, the company announced it was closing down Icera in 2015.
“I wouldn’t expect Nvidia to sack all Arm people, but if the centre of gravity moves to Silicon Valley, inevitably Cambridge will reduce in importance, and there are good designers in Silicon Valley too. That’s the first problem.
“The second problem is it destroys Arm’s neutrality, which is the fundamental reason why we spun out Arm from Acorn in the first place.
“I argued at the time that people wouldn’t buy a microprocessor from a competitor and most of the 500-plus licensees that we have at Arm are competitors of Nvidia.”
Today, Arm’s computer chip designs and instruction sets, defining how software controls processors, are licensed for others to use in their devices.
This business model is at the heart of the Fulbourn Road-based company’s success, and has taken its technology into all of our homes.
“But by far the worst is the third reason - technology sovereignty,” continued Dr Hauser. “We’ve been complaining about the dominance of Google, Amazon, Netflix and Facebook in different areas, and there has been lots of discussion about how we in the UK and Europe have managed to allow this to happen.
“With an Arm sale, we pass the last great European semiconductor company that has a global dominance in smartphones to the Americans.
“Of course, it becomes a division of Nvidia, it comes under the CFIUS [the Committee on Foreign Investment in the United States] regulations, which means if we want to use our own, Cambridge-designed microprocessors in the UK, we’ll have to ask the President of the United States to do so, which is not a very good outcome.
The best option, he suggested would be an initial public offering (IPO), taking Arm public.
“The main sensible alternative is what Softbank has wanted to do with Arm along, which is to IPO it.
“If we list it on the LSE, we could bring Arm home to be a British company again. With the help of the government, I’m sure we could give Softbank the money through an IPO procedure that they need.
“If the LSE doesn’t have enough firepower for a $40billion IPO - and I’ve talked to the LSE about this - they would be happy to do it with the New York Stock Exchange, the Shanghai STAR market, or Euronext, so it is certainly doable.
“It will take a little longer - Softbank won’t get the cash right away, but they will probably get a little more for it as well.”
Despite this potential, Dr Hauser is fearful that the Nvidia deal could proceed.
“I’m very worried indeed because the deal makes so much sense for Nvidia and Softbank, and that’s why we need the UK government to stop this terrible deal,” he said.
“It makes sense for Softbank because they’ll get the cash that they need immediately. It makes sense of Nvidia because they can get the microprocessor crown from Intel and they will basically buy Arm to destroy it. It is just terrible.”
He pointed out that Intel, which recently pushed back its 7-nanometre chips for PCs after discovering a defect with them, was currently going through a challenging time that Nvidia could capitalise on.
But Dr Hauser, a venture capitalist with Amadeus Capital Partners, believes the UK government still could have an important part to play.
He called on the government “to refuse the deal from going through and encourage Softbank to follow through with its original intent to IPO the company”.
“It’s a UK company so the UK can play the same game that President Trump plays all the time and say this is vital to the economic interests of the UK,” he said.
“The government has that power but there are also powers of persuasion, if it gets behind an Arm IPO. The LSE would be more than happy to take Arm public and make it a British company. It will probably take three to six months, but that’s acceptable.
“Softbank’s share price is at an all-time high. People are very negative about it, but it’s not exactly hurting.
“And if the British government is making the argument, I’m sure that Softbank will listen.”
The idea of a foundation investment from the government has also been suggested by some.
“A billion or two in there would get things started. They have made an investment in a much less important company,” noted Dr Hauser, referring to the £378m in the satellite firm OneWeb.
Dr Hauser, who remains an Arm shareholder, voted against the 2016 Softbank deal despite a conversation with CEO Masayoshi Son.
“I believed him when he called me and told me ‘I’m going to look after your company’. But if you pay $32bn you can do with it whatever you like. These are the financial rules.
“But I was worried about what would happened if something changed and it was not Son in charge of it anymore. What if he retired again, which he had done before? Then Arm might be a bit of an orphan.
“Selling it on is, in a way, the same scenario. And I was right in that all the things he said he would do - keep the business model, keep the management, invest and expand in Cambridge - he has done.
“Softbank has been a surprisingly good owner of Arm, because it is not a semiconductor company and therefore the Switzerland status that Arm has in the world was preserved.
“None of these things is true in an Nvidia deal. Management will be exchanged. It will be an Nvidia division. Jobs will reduce in Cambridge and it will have an American-type CEO.
“This doesn’t bode well for Arm.”
Another of Arm’s co-founders, Tudor Brown, has suggested Softbank has over-invested in Arm and spent in the wrong areas, meaning it has not delivered the return it might have hoped.
Dr Hauser questioned another area.
“In a way the one mistake that they made - or it might not be a mistake, we’ll see in the long-term - was to sell 31 per cent of Arm China to the Chinese.
“The other reason why I’m so against this deal is that it will break up Arm into a US Arm and a Chinese Arm. There will be two types and fuel the trade war between America and China. It will be sad for a British company to be torn between them.
“This is such a difficult one to stop because the financial pressure on Softbank and Nvidia has such phenomenal currency at the moment, so they can buy anything. They are the most valuable semiconductor company in the world right now.”
Cambridge’s Labour MP Daniel Zeichner has already urged the business secretary Alok Sharma to stop the deal .
This week, South Cambridgeshire’s Conservative MP, Anthony Browne, a former chief executive of the British Bankers’ Association, told the Cambridge Independent: “I am deeply concerned about the sale of Arm, and the impact it could have on jobs in Cambridge and the technological leadership of the UK.
“The government should only approve the sale so long as it is clearly in the national interest - as well as Cambridge’s interest. It is important for the UK to be open to international investment, which brings finance and expertise. But over the last few decades British governments of all hues have been too casually optimistic about the consequences of selling major British companies, when it is clear that actually ownership really does matter.”
Arm, Softbank and Nvidia have not commented on the deal.
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