Why keep your supplier at arm’s length?: SoftBank’s $40 billion sale of Arm Holdings to Nvidia
Monday 21st September 2020
News emerged that SoftBank is planning to sell the UK-based computer chip design firm to America’s largest graphics chip maker.
The UK Government has announced a probe into the deal as it has a significant impact on the UK’s economy, triggering their powers outlined in the Enterprise Act 2002.
There are various competition issues that have been highlighted as Arm designs processor chips used not only by Nvidia itself, but also by the likes of Apple, Samsung and Huawei. Nvidia’s access to Arm’s intellectual property could give them an unfair advantage and may also affect the supply of Arm’s technology to other competing companies.
There is a significant geopolitical element to the deal because of a previous agreement that SoftBank had made to the UK. When they purchased the company in 2016, they made legal commitments to keep the company’s headquarters in Cambridge, which generates over 3,000 jobs. These legal commitments are due to expire next September, and although Nvidia has plans to keep the headquarters where they are currently located, this is not grounded in any legally enforceable provisions. On the other hand, there could be a rise in technology-based companies moving into the UK if Nvidia is successful in their plans to turn it into an AI hub, cultivating a space for innovation and new technology.
The other geopolitical issue is that Nvidia is a US-based firm, thus any sales of Arm’s technology will be subject to the jurisdiction of the Committee on Foreign Investment in the US, as opposed to any UK regulators. In light of recent tensions regarding Huawei and TikTok, the US could potentially leverage this to limit the supply of Arm technology to China. This would not only have a huge impact on the race to build a 5G monopoly, but there could be a rise in tech companies around Asia such as India and Singapore. Despite a recent dip, tech stocks have largely been doing well on indexes such as the Nasdaq over the past five months, but this deal could influence how these companies may be valued in the future if their access to the chip company is reduced.
In other tech news:
Some of China’s biggest tech firms such as Tencent and Alibaba have been increasing their presence in Singapore as tensions are still high between China and the US. Singapore has a good relationship with both the US and China, so it is seen as reasonable and neutral ground. Singapore has managed to attract a lot of foreign direct investment through various schemes such as the VCC (variable capital company), which makes it much more attractive to investors.
Chinese companies have recently taken to listing more IPOs in Hong Kong and Shanghai as opposed to New York because of the tensions with Washington and Trump’s general hostility towards Chinese-based companies who can access American data. As the US presidential election rapidly approaches, it will be interesting to see whether this will change if Biden is elected.
