SoftBank Group said on Monday it has agreed to sell Arm, the British chip design firm, to Nvidia Corp for as much as $40 billion. The deal is one of the biggest of the year and will put the American group at the forefront of the semiconductor sector, if it gets a green light from regulators.
The deal puts a vital supplier to Apple and others across the industry under the control of a single player and could face potential pushback from regulators and Nvidia rivals, Reuters said.
The Arm sale is subject to approval by authorities in several jurisdictions, including Britain, China, the United States and European Union, SoftBank Group said.
It hopes the deal will be completed by March 2022, it said in a statement.
The announcement also renewed speculation about SoftBank's future, with Bloomberg reporting that it is set to revive talks about going private via a management buyout plan.
Nvidia will pay SoftBank $21.5 billion in shares and $12 billion in cash, including $2 billion on signing. The deal will see SoftBank and the $100 billion Vision Fund, which has a 25% stake in Arm, take a stake in Nvidia of between 6.7% and 8.1%.
SoftBank could also be paid an additional $5 billion in cash or shares depending on the chip designer's business performance, with Arm employees to be paid $1.5 billion in Nvidia shares.
The Japanese investment giant bought the British chip technology firm for $32 billion just four years ago. However CEO Masayoshi Son has been slashing his stakes in major assets to raise cash.
SoftBank executives, frustrated at the group's share performance, have held early stage talks about taking the Japanese technology group private, Reuters said, citing a source. Those talks could gain momentum following the Arm sale.
SoftBank Group shares soared in early morning trade in Tokyo, rising by almost 10% before settling, up 7.78% to 6,316.0 yen around 30 minutes into the day, AFP said.
SoftBank said it felt Arm would perform better in combination with Nvidia and the sale would "contribute to an increase in our company's value for shareholders".
"Our belief in the power of Arm's technology and its potential remains unchanged, and we, as a strategic major shareholder in Nvidia, will be committed to Arm's long-term success," it said.
To remain in the UK
Nvidia said the acquisition would help "create the premier computing company for the age of artificial intelligence".
It said Arm would retain its name and remain in Cambridge in the UK, where a new global centre for excellence in AI will be set up.
"Cambridge is going to be a site of growth," Nvidia CEO Jensen Huang said.
Arm, which was founded in 1990, specialises in microprocessors, and dominates the global smartphone market. But its chips are also found in countless sensors, smart devices and cloud services.
The companies did not discuss the deal with the British government until shortly before the announcement because the talks were secret, Huang said.
Nvidia is known for graphics cards that are favoured in the video game industry and its sales have jumped during the coronavirus crisis, with gaming a popular past-time with teens during lockdown.
Potential pushback, China scrutiny
With potential pushback looming, Huang emphasised he will retain Arm's neutral licensing model and expand it by licensing out Nvidia intellectual property for the first time.
Nvidia said it will licence its flagship graphical processor unit through Arm's network of silicon partners. It will build chips for devices like self-driving cars but also make its technology available for others.
Huang said Arm would not be subject to US export controls under the deal. But the takeover is likely to come under close scrutiny in China, where thousands of companies from Huawei to small startups use Arm technology.
Nvidia will take control of a minority stake in the joint venture Arm China. Arm is in dispute with the venture, which licenses chip architecture to local companies, over its management.
Nvidia began as a graphics chip designer and has expanded into products for areas including artificial intelligence and data centres.
The Arm acquisition will put Nvidia into even more intense competition with rivals in the data centre chip market such as Intel Corp and Advanced Micro Devices Inc because Arm has been developing technology to compete with their chips.
In what would amount to a direct challenge to those rivals, Huang said it is "possible" Nvidia will build its own server chips based on Arm designs.
Data centre business
Nvidia is buying up technologies in parts of the booming data centre business where it does not currently play.
In April it completed the purchase of Israel-based Mellanox Inc, which makes high-speed networking technology that is used in data centres and supercomputers.
Arm does not make chips but instead has created an instruction set architecture – the most fundamental intellectual property that underpins computing chips – on which it bases designs for computing cores.
Arm licenses its chip designs and technology to companies like Qualcomm, Apple and Samsung Electronics, which in turn use the technology in their chips for smartphones and other devices.
Apple's forthcoming Mac computers will use Arm-based chips.
With reporting by Etienne Balmer at AFP and Sam Nussey at Reuters.