Nvidia acquires Arm from SoftBank for $40 billion

Nvidia confirmed that it is acquiring processor architecture firm Arm from Softbank for $40 billion. The deal confirms weeks of speculation as well as a report yesterday by the Wall Street Journal.

Santa Clara, California-based Nvidia, a maker of graphics and AI chips, said the deal consolidates its expertise in artificial intelligence with Arm’s vast computing ecosystem. Cambridge, England-based Arm has more than 6,000 employees, while Nvidia has more than 13,000.

SoftBank took Arm private in 2016 for $32 billion. At the time, SoftBank CEO Masayoshi Son said he was preparing for the Singularity, the predicted day when AI collectively becomes more intelligent than human beings. But SoftBank has run into a cash crunch after losing billions of dollars due to the pandemic and bad bets on Uber and WeWork.

Nvidia said it will expand Arm’s presence in the UK by establishing a world-class AI research and education center there, and it will build an Arm/Nvidia-powered AI supercomputer for research. Nvidia also said that it would continue the open-licensing policy of Arm with its customers, who ship more than 20 billion chips a year for everything from smartphones to tablet computers and internet of things sensors.

Apple plans to use ARM-based processors to replace Intel processors in upcoming models of its Mac computers.

Arm doesn’t make chips itself. It is the steward of the ARM processor architecture, and it creates designs that other companies license and use in their own chips for just about everything electronic. Earlier this year, Arm said its licensees had shipped more than 180 billion chips using ARM designs.

The open-licensing plan is important, as Arm’s customers depend on that. Nvidia has been a fierce competitor to rivals such as Intel and AMD. Apple has used tech from Imagination Technologies to create the graphics processing components in its iOS devices, and it hasn’t been a huge customer for Nvidia’s graphics on the Mac side. Nvidia has competed to become a behemoth of the PC industry, with $13 billion in sales (on a trailing 12-month basis) and a market value of $330 billion. The latter is higher than Intel’s value of $144 billion.

Above: Simon Segars, CEO of Arm, onstage at Arm TechCon 2019.

Image Credit: Dean Takahashi

If the deal is approved, these big rivals would become Nvidia’s customers. It would make sense for Nvidia to treat Arm as an independent subsidiary and continue its open customer relationships with rivals in the processor business. Arm still has rivals such as the royalty-free RISC-V architecture, which is enjoying increasing support from companies that had tired of Arm’s licensing fees.

The deal would secure Nvidia’s future access to processor technology. If Arm fell into the hands of rivals, Nvidia could get shut out. And it still competes fiercely with the likes of Qualcomm, Intel, and AMD. Owning Arm is a kind of insurance policy for Nvidia, particularly if it doesn’t trust any entity that has control over key intellectual property for its AI and mobile processor efforts.

The transaction is expected to be accretive to Nvidia’s bottom line, meaning Arm is profitable and should start contributing profits to Nvidia’s own net income immediately. SoftBank will retain a share of Arm but the holding is expected to be under 10%.

In a statement, Nvidia CEO Jensen Huang said that trillions of computers running AI will create a new internet of things that is thousands of times larger than today’s internet of people. This deal will position Nvidia for that age, he said.

Simon Segars, CEO of Arm, said that the companies share a vision on how energy-efficient computing will help address issues from climate change to healthcare. He said delivering on the vision requires new approaches to hardware and software. Nvidia said it will keep the Arm brand identity and name, and it will remain in the United Kingdom as a corporate entity.

Under the terms of the transaction — which has been approved by the boards of directors of Nvidia, SoftBank, and Arm — Nvidia will pay to SoftBank a total of $21.5 billion in Nvidia common stock and $12 billion in cash, which includes $2 billion payable at signing. The number of Nvidia shares to be issued at closing is 44.3 million, determined using the average closing price of Nvidia common stock for the last 30 trading days. Additionally, SoftBank may receive up to $5 billion in cash or common stock under an earn-out construct, subject to satisfaction of specific financial performance targets by Arm.

Nvidia will also issue $1.5 billion in equity to Arm employees. Nvidia intends to finance the cash portion of the transaction with balance sheet cash. The transaction does not include Arm’s IoT Services Group.

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