NVIDIA and the $40bn acquisition of Arm: Will the UK government block it - and should it?
NVIDIA’s $40bn acquisition of Cambridge-based Arm would create a US monopoly in microprocessors, Hermann Hauser has warned.
The Acorn Computers co-founder, who was involved in the development of the first Arm processor, was speaking to the Cambridge Independent following unconfirmed reports that the government is considering blocking the deal.
Those claims surfaced from Bloomberg, which reported that a person familiar with the discussions had said the UK was “currently inclined” to block the takeover by the US’s largest chip company “due to potential risks to national security”.
These risks were not specified, but another source was reported as saying the UK is likely to conduct a deeper review into the deal.
Culture secretary Oliver Dowden tasked the Competition and Markets Authority (CMA) to probe the proposed acquisition in April.
He issued a public interest intervention notice (PIIN), which confirmed he was intervening in the sale on national security grounds, after considering advice from the “investment security community”.
The CMA, which was already examining the deal’s potential impact on competition, was given a deadline of July 30, but responded on July 20.
The findings have not been made public but the CMA has said the report includes “a summary of any representations on national security matters received from third parties”.
Dr Hauser, who has been a vocal critic of the deal, believes technology sovereignty is at stake and the UK would be foolish to allow NVIDIA to gain control of Arm’s extraordinary assets, which can be found in 95 per cent of mobile phones, most cars and IT infrastructure equipment.
Arm is a leading player in artificial intelligence and 5G: its processors power the world’s most powerful supercomputer, the Fujitsu A64FX.
“I think Arm’s acquisition by NVIDIA would be a disaster because it would create another US monopoly like Google, Facebook etc, but this time in microprocessors,” said Dr Hauser, who developed the first Arm processor at Acorn, before Arm was spun out as a separate company in 1990.
Arm was bought for $32bn in 2016 by Japanese conglomerate SoftBank and its Vision Fund. SoftBank, which is selling assets to raise cash, has retained Arm’s headquarters in Fulbourn Road and its phenomenally successful open licence model. This enables it to license its computer chip designs and instruction sets, defining how software controls processors, for others to use in their devices.
NVIDIA, for its part, has promised to do the same, pledging to retain this business model and promising to invest in Cambridge, creating an AI centre of excellence and launching the UK’s most powerful supercomputer, the Cambridge-1.
Dr Hauser is unmoved by these promises.
“We must not be bribed by the crumbs that NVIDIA is willing to hand out to Cambridge to get a $40bn deal done,” he said. “The going rate for bribes is 10 per cent – ie $4bn not $40m, which the AI computer costs.”
For Dr Hauser, the issue of technology sovereignty today is comparable to the military prowess of yesteryear.
While the potency of armed forces has historically been used to compel countries to act, he argues that today technology – and access to it – similarly exudes great influence.
When Donald Trump was US president, his secretary of state Mike Pompeo pushed hard for Chinese technology firm Huawei to be excluded from the UK’s 5G network. He said the US would “never permit American international security information to go across a network that we don’t have trust and confidence in” – raising the prospect that US intelligence may not be shared with the UK in future.
Mr Pompeo also pointed out that the US controls the City of London’s payment infrastructure, and that electronic chips used in the UK require US electronic design tool software.
Dr Hauser argues that a country or group of countries that does not have unfettered access to critical infrastructure technologies risks “technological coercion”. In other words, we will be forced to bend to the will of the superpowers of the US and China unless we either produce these technologies ourselves or have access to them from a range of sources.
He has called on the the UK and European Union to work together – an interesting post-Brexit conundrum in itself – to establish jointly a €100billion ($120billion) “Technology Sovereignty Fund” in order to counter the $100billion the US is spending on the subject.
He points out that amid the US-China trade war that reached boiling point under Trump’s administration, the Chinese launched a major national effort to make the country independent in terms of semiconductor production.
The current global semiconductor shortage – which is holding up production of everything from phones to vehicles to Xbox games consoles – is likely to fuel this new ‘arms’ race for some time to come.
In this atmosphere, opponents fear Arm’s sale to NVIDIA would scupper the UK’s access to technology that was invented here.
“With an Arm sale, we pass the last great European semiconductor company that has a global dominance in smartphones to the Americans,” Dr Hauser has previously observed.
“If 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.”
Cambridge’s Labour MP Daniel Zeichner agrees that the deal is about far more than the important considerations around jobs.
“I would urge the government to listen carefully to the findings of the Competition and Markets Authority and other experts in the field,” he said.
“I have always called for legal guarantees on Cambridge jobs, but this proposed deal also has far wider implications.
“There are potential risks to national security, as I pointed out when I secured a debate in Parliament, and the important issue of tech sovereignty.
“Arm is a strategic national asset and a UK company with global dominance. Semiconductors underpin our critical national infrastructure.
“I am pleased after two long years ministers seem to be coming round to these arguments, but they need to come to a decision because endless delay is sapping morale among staff and risks setting Arm back as global competitors move forward.”
While Mr Zeichner called for ministers to end the uncertainty soon, Anthony Browne, the Conservative MP for South Cambridgeshire, was concerned that they do not repeat mistakes by previous governments by taking the decision too lightly.
“Arm is a major national asset, as well as local employer, and it is absolutely right that the government examines the takeover closely to consider the national security implications and to ensure the UK continues to have a thriving tech sector,” he told the Cambridge Independent.
“Governments have previously been far too casual about takeovers and ownership, a triumph of hope over experience that has in the past left the UK compromised and disadvantaged.”
There has been speculation that delays to proceedings could prompt Arm to consider a flotation.
Dr Hauser has said the “natural alternative” to the acquisition would be to “take Arm public on the London Stock Exchange and make it a British-owned company again with a Golden Share for national economic security”.
But Arm’s CEO Simon Segars has denied that an IPO (initial public offering) is in the offing and said that the company is committed to closing the deal with NVIDIA, describing it as “great for competition” as it will create a “richer portfolio of IP” that companies can use to innovate.
“There’s been a lot of ill-informed speculation out there about what the future of Arm with NVIDIA will look like,” he said. “ Some believe that an IPO would have been a better path. Others are concerned that Arm will leave the UK, while some have fears that Arm will become anti-competitive. These assumptions couldn’t be further from the truth and I’d like to address them head-on.
“The combination of Arm and NVIDIA is a better outcome than an IPO. The level of investment that will be needed to lead in AI will be unprecedented. We’ve been down this road before when we predicted a major market shift in 2016. We knew that we needed to invest heavily in our products, talent, and technology to take advantage of the opportunities ahead. The initial investments came when SoftBank acquired Arm; it enabled us to build new technologies that expanded our reach into data centres, the automotive and networking industries, all while retaining our leadership in mobile.
“Now is the time for us to take our scale to the next level to address the technology challenges ahead. We contemplated an IPO but determined that the pressure to deliver short-term revenue growth and profitability would suffocate our ability to invest, expand, move fast and innovate.
“Combining with NVIDIA will give us the scale, resources and agility needed to maximize the opportunities ahead. This deal is the best opportunity for Arm and our customers and will enable the UK to be a meaningful industry player in the age of AI.”
And speaking at a virtual summit in June, he was clear that Arm cannot be expected to achieve this alone.
“We’ve just got way more to do than we’ve got people to do it,” he said. “The range of products that our licensees want to build is growing and growing. What they are asking from us is increasing and increasing, because of the complexity going up and there’s no way we can do it all on our own.
“Through the combination with NVIDIA we are going to have a lot more resource to bear in creating an even richer portfolio of IP, enabling that through the entire semiconductor industry, and helping fuel the delivery of all these really cool applications that are to come.”
NVIDIA CEO Jensen Huang, at the same interview, said: “The combination is so special because the two of us are complementary. The two of us don’t do the same things, and nor do we do it in the same ways for the same markets. Arm is a world-class CPU/IP company in the most popular CPU core in the world. NVIDIA is a platform technology company. We’re about the peripherals, the accelerated computing, the accelerated stack. The combination is going to bring new ideas and new innovations to market. Obviously, it is going to bring a lot more scale.
“The benefit to the market and to the Arm customers is going to be more IP, better IP, more accelerated roadmaps and hopefully taking Arm to the far reaches of what is becoming the diversity of computing that is literally going in every single direction.”
He has pledged to grow Arm’s headquarters, while investing in AI and robotics research, and bringing computational biology capabilities.
This, he argues, would help the UK “become a centre of world-class AI development”.
“We are buying Arm because we want to advance computing further. The future of computing is going to move further from the cloud to the edge. That is what Arm is fantastic at. Where we are fantastic is AI. So, imagine the possibilities in putting AI at the edge,” he said.
The Cambridge-1 supercomputer would cost about $100m “as a starting point”, he said, adding: “The excitement is fantastic.”
The consequences of the deal are far-reaching, whatever happens, and it is their extension beyond computing to international relations that may prove the determining factor.
Either way, a swift decision from regulators on the acquisition seems unlikely. While the UK government considers its next step, the Telegraph has reported that NVIDIA had not filed its paperwork to the European Commission before Brussels headed to the beach for its summer holidays. Meanwhile, a formal review of the deal in China – required because of Arm China, a joint venture with Chinese private equity firm Hopu Investments – is said not to have begun yet. Regulatory approval is also required in the US.
The parties, who announced the deal in September 2020, expected the process to take 18 months.
Time yet, then, for more bargaining chips to be played.
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