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Buying Arm is a pipe dream

via:凤凰网     time:2022/4/18 10:01:32     readed:163

Source: content compiled by semiconductor industry watch (ID: icbank) from koreaherald, thank you.

A $40 billion semiconductor-industry deal that would have allowed Nvidia, a graphics processor giant, to take control of Arm, a UK-based chip-design giant, collapsed in February because of antitrust access.

A few months later, there were signs that a consortium of strategic investors was being formed, including SK Hynix, the South Korean memory chipmaker. The consortium is seeking to salvage what is believed to be the biggest deal in the history of the global chip industry.

All eyes are on whether the consortium can assuage regulatory concerns and commit to spending as much as Nvidia has proposed, while finding Arm financially attractive.

Experts say this could be a pipe dream amid an intensifying global arms race for semiconductor chips.

Nationalist pressure

As chips become scarcer, the world is looking to them as strategic national assets. This is especially true for companies like Arm, which designs most of the world's processors for smartphones, self-driving cars and Internet-of-things devices, among others.

That analysis led Britain's competition authority to review the Arm deal in November, citing competition and national security concerns. The FEDERAL Trade Commission has also filed a complaint against Nvidia's acquisition of Arm. The scrutiny is similar to the "significant regulatory challenges that prevented the closing of the transaction" between SoftBank and Nvidia, as described in a joint statement about the deal's termination in February.

With the tug of war between the world's superpowers showing few signs of abating, especially after the apparent war between Russia and Ukraine, a potential consortium is unlikely to be a game changer for Arm deals, experts say.

"Nvidia was talking about not just monopoly issues, but national security issues. For consortiums, I don't think much has changed, "said Cameron Johnson, head of Asia-Pacific strategy at consultancy FAO Global.

This comes as the US, China and Europe each bid to increase chip production, encourage chip-related research or pass new legislation providing tax breaks for chip supply chain companies. In South Korea, the incoming government of Yoon Seok-ryol is preparing plans to provide more government subsidies for chip plant expansion, simplify the regulatory process for chip-related investments and step up the recruitment of chip experts.

Given this, any consortium would inevitably face opposition from those excluded from buying Arm. The acquisition of Arm requires regulatory approval in the US, UK, EU and China.

"If you look at the names on the consortium, there are no Chinese names," Mr. Johnson said. "It's still very challenging to get any approvals."

'Money pit'

Another concern raised by opponents of the Nvidia - SoftBank talks is that if one party controls Arm, its customers could be subjected to discriminatory treatment - such as modifying its competitors' product support, licensing fees and research and development levels.

This will be a regulatory challenge for the alliance to overcome, but overcoming it will not be enough to solve the problem. Market watchers wonder whether the new investment group will find Arm financially attractive in its expensive bets, while allowing it to treat its rivals as equals.

Ideally, the consortium should give all OF Arm's customers -- both inside and outside the consortium -- equal access to Arm's chip-related intellectual property, while providing a ready-made financial commitment to Arm's technological innovation.

Nvidia has tried to calm concerns by promising an open licensing program for Arm's intellectual property, expanding its r&d and product roadmap, promoting interoperability and protecting any confidential customer information. A proposal for a partnership related to Nvidia's data center business has also been submitted to Arm.

Arm has also been asked to catch up with rival chip architectures, such as Intel and AMD's x86, with more intensive research and development spending. Arm's latest UK regulatory filing shows its r&d spending for the fiscal year ending March 2021 reached $886.2 million, up 24 percent from the same period last year.

Wang Yang, a senior analyst at CounterpointResearch, said: "Arm needs a lot of financial resources to continue to innovate, but investors may not get full benefits from these investments as competitors have equal access to new technologies."

In addition, the price tag of the company itself is getting bigger. SoftBank hopes to list Arm shares in New York by March 2023 at a reported valuation of at least $60 billion, 50 percent higher than its proposal to Nvidia.

SoftBank, which has wholly owned Arm in $31 billion of deals since 2016, appears to favor an INITIAL public offering -- a way to profit from its investment and bypass antitrust hurdles.

"An IPO is the most logical way to ease regulatory concerns. A consortium takeover is still possible, but the deal needs to resolve significant hurdles, "Yang noted.

Senior "buyer"

In contrast to the Nvidia case, observers are also watching to see if dealmakers in the consortium will do anything.

Park Jung-ho, SK Hynix's chief executive, recently expressed interest in bidding to join the consortium. Mr Park is known as the experienced dealmaker behind many of SK Group's acquisitions. These include SK Hynix; ADT Caps, a security services company now known as SK Shields; Kaixia, formerly Toshiba's memory chip business; And Intel's SSD and NAND businesses, now renamed Solidigm.

Some of these deals have proved profitable. SK Hynix is one of the top three memory chip companies along with Samsung Electronics and Micron. SK Also wants to raise the valuation of SK Shieldus to won3.5tn ($2.9bn) after it bought 100 per cent of the company's equity and debt together with financial investors including Macquarie for nearly Won3tn.

Park also owns the Solidigm deal, one of the world's few chip-related deals involving a Chinese regulatory green light. He also knows what consortia do, as seen in kai Xia's deal with the Bain Capital-led consortium.

Park's hints about buying Arm have reignited the prospect of Arm consortium talks, which were first proposed by Pat Gelsinger, chief executive of US chip giant Intel, in February.

Forming a consortium with global partners to buy Arm could be a way to prevent "[allowing] a single entity to take full advantage of the benefits of controlling Arm," Park told reporters immediately after the chipmaker's shareholder meeting in March. Earlier, he expressed interest in visiting the U.S. as early as April for consortium talks.

But experts say buying Arm would be a different story, given its importance to the global tech industry.

"Arm has a huge competitive influence in the tech industry and regulatory scrutiny is likely to be greater than the Kioxia deal," Yang said.

SK Hynix said in a filing with financial authorities here that it was reviewing strategic options including a co-investment by Arm, but that no decision had been made.

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