Nvidia’s planned acquisition of Arm has run into trouble as another regulatory body raises severe concerns about the proposed deal. The Federal Trade Commission, FTC, sued to block what would have been the biggest deal in the semiconductor industry.
According to the FTC, the deal would kill competition and ultimately harm consumers. Nvidia is a chip manufacturing company while Arm licenses chip technology. If allowed to proceed, Nvidia would have complete control over the technology and designs that competing companies rely on to make their own chips.
Nvidia licenses Arm technologies in many areas, ad giving total control to Nvidia will provide it with an unfair edge in the markets.
FTC’s competition bureau director, Holly Vedova, said, “The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies. Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets. This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals. The FTC’s lawsuit should send a strong signal that we will act aggressively to protect our critical infrastructure markets from illegal vertical mergers that have far-reaching and damaging effects on future innovations.”
Under the leadership of Lina Khan, the FTC had promised to investigate mergers and acquisitions among top firms to prevent the weakening of competition in the industry. The current administration appointed her.
The FTC commissioners all voted to block the merger, and a trial for the lawsuit is slated for May 10 next year.
However, the government is focused not only on tech firms but also on preventing anti-competition practices in markets as diverse as the gas and pharmaceutical industries. It is also suing to stop the sale of Simon & Schuster to Penguin Random House in the publishing industry.
Arm is a British company that licenses designs for other companies to design their microprocessors and other semiconductors. The company is so influential that it estimates its technology appears in more than 25 billion chips every year.
The company was bought out by Japanese firm SoftBank in 2016.
Nvidia is a California company that makes many of the chips in video game graphic renderers, artificial intelligence tech, cars, etc. The company has been making moves to widen its offerings, including microprocessors for a wide range of applications, including data center servers.
The CEO of Nvidia, Jensen Huang, claimed the acquisition of Arm would birth a robust company that would advance artificial intelligence. He also said Arm would continue business as usual as an independent entity, with no change to its relationships with its numerous licensees.
However, Huang’s promises have not assured his company’s competitors, including big names like Qualcomm, Google, Apple, Samsung, Amazon, and Microsoft. The FTC contends the deal will give Nvidia access to sensitive info belonging to these companies who trust Arm because it is a neutral third party.
“Licensees rely on Arm for support in developing, designing, testing, debugging, troubleshooting, maintaining, and improving their products. Arm licensees share their competitively sensitive information with Arm because Arm is a neutral partner, not a rival chip maker. The acquisition is likely to result in a critical loss of trust in Arm and its ecosystem.”
Other regulatory bodies are already looking into the deal. Across the pond, the UK, through its Competition and Markets Authority, started investigating the deal last month, with its concerns centered around competition and national security.
The CMA had recently ordered Giphy’s acquisition reversal by Meta (formerly known as Facebook).
In October, the European Union also began its own probe into Arm’s acquisition.
Nvidia has confirmed it will continue to seek approval for the deal by demonstrating the transaction will benefit the industry and promote competition. It also insisted it will preserve Arm’s open licensing model and ensure that its IP is available to all interested licensees, current and future, according to a statement provided to The Verge.
However, Nvidia was aware the deal would raise more than a few eyebrows as it had announced it was confident regulators would recognize the benefits of the acquisition. Its initial timeframe of 18 months for completing the purchase is now looking like a distant possibility.