Nvidia

• American company
• Founded in 1993
• Massive company known for their graphics cards
• Top of the graphics card oligopoly (against AMD)

Arm

• British company
• Founded in 1990
• Designs low power, cheap and relatively powerful processors
• Mainly competes with Intel and AMD processors

Chances are, you own a device that contains a processor based on Arm architecture. Although relatively unknown to most consumers, these chips are the basis of thousands of devices.

Architecture heavily affects the design of the processor as it changes where the individual parts of the processor can be kept, as well as having a major impact on power consumption. The Arm ISA is so popular because it allows the manufacturer great freedom on how the processor can be built. This means that companies can design it however they want, and this is the major selling point. Freedom for firms means they can modify designs to their liking, so that they can make chips that are smaller, consume less power, and perform much better than normal processors. This makes Arm processors perfect for smaller devices where size is a constraint, like smart phones, TVs, drones and even navigation systems in cars - performance is not sacrificed.

Arm makes profit by licensing its designs to around 500 of these companies like Samsung, Apple, and Fitbit, who use them as foundations for their own chips. Some major chips based on Arm architecture include Qualcomm Snapdragon (used in many Android phones) and, more recently, Apple’s M1 chips in their Macs and MacBooks.

Why does Nvidia want to acquire Arm?

Nvidia wants to buy Arm from their current owner, Softbank, for $40 billion (£30 billion) dollars. If this went forward, the next step would be to vertically merge with Arm. A vertical merger is when two firms that are both involved in the production of a good or service but at different stages of the supply chain (in this case, Arm supplies the CPU designs and Nvidia manufactures the end product GPU that uses these designs) become one larger firm. It will benefit both companies; Arm gets access to Nvidia’s resources, like its large R&D department; and Arm allows Nvidia full access of all its designs without having to pay a fee.

This would reduce Nvidia’s costs of production, allowing them to sell cheaper products, and help Arm improve their own designs even quicker. Furthermore, Nvidia has expressed interest in making optimised processors so that it can break into other fields, such as machine learning and Arm can help with this.

What’s the issue?

When Softbank bought Arm for $32 billion (£22.7 billion), there was hardly even a stir, so why is this causing a commotion? Considering Nvidia would have full control over Arm, there have been concerns about the power that Nvidia (as a big player in the tech industry) has and what it could potentially do with it. The main worries are that:

1. Nvidia controls the supply of Arm processors

   This would mean that Nvidia could stop Arm from selling to Nvidia’s own competitors completely, or they increase processor prices – since there are not many good alternatives/substitutes so the price elasticity of demand is quite inelastic – in order to get greater profits, which would be then passed on to consumers like you or me. Some large firms affected would be AMD, Microsoft, Samsung and Apple. This wasn’t an issue before, as Arm was an unbiased party that didn’t really compete with any of these firms, whereas now, Nvidia is.

2. Nvidia moves the majority of Arm operations over to America

   As one of the biggest IT companies in the UK, Arm employs 3,000 people in the UK – these jobs could be lost if the deal went ahead. This would be a big blow to the UK economy which is already suffering heavily from the recovery of the pandemic, where many workers are worried about job security.

Will the deal go ahead?

Due to the negatives, many IT firms and prominent figures have protested the deal, as well as the original cofounder of Arm himself, (who now has no shares in Arm) who has advocated for the British government to intervene and stop the deal or attach legally binding conditions to the deal that, for example, ensure that Nvidia keeps Arm based in the UK in order to ensure that Nvidia doesn’t become the next tech monopoly, joining the likes of Amazon and Google.

The UK government’s Competition and Market’s Authority (who handle any anti-competitive actions e.g. collusions in cartels) has already begun an investigation into this, to see if the deal is breaking or will break any laws, and have said they will report back by 30th July this year at the latest.

Moreover, many executives of Arm China are not happy that an American firm will own a major chip designer. A lot of them want the deal to be broken or, as others have suggested, putting conditions on the deal that still let China have their normal access to the designs.

The whole situation raises the question of ‘How much freedom do firms actually have in markets?’. Although we usually think of the UK’s market as a free one, with a little regulation to handle questionable activity, is this a case of regulators going too far? After all, nothing neither Arm nor Nvidia are doing is directly illegal. Or should the government be doing more, considering the possibilities of what could happen?

Either way, it’ll be interesting to see what happens.