(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)


NEW YORK - Sometimes a deal’s harshest criticism is its best defense. Such is the case for chipmaker Nvidia’s attempt to buy Arm, an acquisition the U.S. Federal Trade Commission is now suing to block. The inflating price of the largely stock-based deal has significantly undermined the financial logic. The regulator’s lawsuit, however, provides a useful reminder of the strategic rationale for owning the so-called Switzerland of semiconductors.

Nvidia makes processors that can chew through vast volumes of data in parallel using simple operations. This technology is increasingly important for data centers, where it powers machine-learning algorithms. Here, Nvidia’s chips are complementary to traditional computer processors made by Intel, Advanced Micro Devices and others. Arm, on the other hand, threatens to displace such circuitry entirely.

Unlike Nvidia, Arm doesn’t make its own chips, but instead licenses its designs to other companies that use them as the foundation of their processors, a position that has earned it a reputation of neutrality inside the industry. Arm’s licensees are increasingly encroaching on Intel’s and AMD’s turf, with Amazon.com offering its own Arm-based data-center chips.

The theory behind acquiring Arm is that it will give Nvidia a foothold in both of the major ascendant technologies, giving it greater access to an important growth market. And yet Nvidia’s shares hardly budged on the news that the FTC wants to stop the deal from happening. It’s an indication that the 150% surge in Nvidia’s share price in the roughly 14 months since unveiling the deal – pushing the headline valuation from $40 billion to some $75 billion – has little to do with expectations of promising synergies, and that investors are unmoved by the possibility it could fall apart.

Trustbusters see it differently. Their complaint identifies three product markets in which it believes the combined company would hold outsize power. Two of them relate to data centers. Per the agreement with Arm and its majority owner SoftBank, Nvidia is legally bound to litigate in defense of the deal. At least the FTC, in a way, is affirming there’s something worth fighting for.


- The U.S. Federal Trade Commission said on Dec. 2 that it would sue to block graphics chipmaker Nvidia from buying UK-based semiconductor designer Arm.

- The transaction, valued at about $40 billion in cash and shares when it was unveiled on Sept. 13, 2020, is opposed by major licensees of Arm’s intellectual property, including Apple and rival chipmakers Qualcomm and Advanced Micro Devices, according to media reports. Chipmakers Broadcom, MediaTek and Marvell support the acquisition, according to Nvidia’s website.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(Editing by Jeffrey Goldfarb and Katrina Hamlin) ((For previous columns by the author, Reuters customers can click on GUILFORD/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | Jonathan.Guilford@thomsonreuters.com; Reuters Messaging: Jonathan.Guilford.thomsonreuters.com@reuters.net))