Nvidia’s Arm deal ‘was dead from day 1’ — and that’s OK

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Wednesday, January 26, 2022

Nvidia’s (NVDA) $40 billion bid to buy chip designer Arm is effectively over. The deal, which would have blown apart the balance of power in the microprocessor industry, already attracted intense scrutiny from regulators both in the U.S. and abroad. Industry heavyweights ranging from Qualcomm (QCOM) to Google (GOOG, GOOGL) also came out against the move, arguing it would consolidate too much power in Nvidia’s hands.

Now, sources tell Bloomberg, the graphics card maker is preparing to scuttle the plan. This is a smart move on Nvidia’s part.

The Federal Trade Commission sued Nvidia to block the deal in December, in order to “prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies.”

Regulators in the U.K were looking into the deal for potential national security concerns — Arm is based in Cambridge — and the move still needed to pass muster in both the European Union and China. It was a long shot from the start.

And according to analysts, the acquisition was more or less dead on arrival when Nvidia announced its intentions in September 2020.

“This was dead from day one,” explained Bharat Kapoor, Americas lead in the high tech practice at strategy and management consulting firm Kearney. “Buying an underlying technology or a platform that everybody else relies upon was going to be hard for anybody to swallow. And I could not see this happening from the very beginning.”

Nvidia will be just fine, though: Even without the deal, its massive lead in artificial intelligence processing makes it a go-to for both large and small companies looking to harness AI for their own applications. That lead, coupled with its graphics cards’ capabilities, has made it the richest chip maker in the world, with a market valuation of $570 billion.

As for Arm, Kapoor suggests that another tech company should snatch it up: Microsoft (MSFT).

Nvidia will continue to be an AI leader without Arm

Nvidia’s stock fell 3% on Tuesday following reports that it planned to ditch its takeover of Arm. Intel (INTC), Qualcomm, and AMD (AMD), meanwhile, were off 0.7%, 0.1%, and 2.5%, respectively. In other words, the move didn’t spark a huge sell-off.

That makes sense, since, according to Oppenheimer analyst Rick Schafer, the deal had just a 50/50 shot at ever being completed and wouldn’t have given Nvidia much of a financial boost anyway.