It is becoming increasingly clear lately that the Nvidia acquisition of Arm faces more mountains to get approval. With the UK Competition and Market Authority as well as the FTC filing complaints, I struggle to see how the deal goes through without significant new remedy proposals from Nvidia on how to keep Arm neutral. Should the deal be shot down by regulating authorities, we have the reality that its current owner, SoftBank, wants to sell its stake and recoup some of its money. SoftBank purchased Arm for $31 billion dollars which is a significant multiple of Arm’s annual revenue. For some additional context here, SoftBank’s annual revenue in 2020 was ~$47 billion dollars.
A final outcome on the Nvidia/Arm deal is not likely to happen any time soon. I will continue to analyze that journey over the course of the next year as it plays out. The question at hand is what comes of Arm as SoftBank looks to sell and a few options seem the most likely.
IPO: Arm was a public company. During that time, I did a wide range of analyses for four of the top 5 investment banks on Arm. I am intimately familiar with the financial models of a licensing business, in this case, Arm. Arm was roughly a $600m firm at the time I did much of this analysis on their business, markets, and financials. Today, Arm is just shy of a $2 billion a year business, and that growth took roughly a decade. The hard reality is licensing companies are first, not big business, and secondly, they grow very slowly. I could write an entire article on why Arm would not be a good public stock but for now, I am just stating it–Arm would not be a good public stock.
Private Equity: Anyone who has been owned by a private equity firm rarely has nice things to say. These companies are most often revenue pirates and the common end result by companies owned by private equity firms is the dicing and slicing of companies for sheer return on investments. During my 21 years in the technology industry, I have personally been involved in the negotiation of two acquisitions of clients by private equity firms and my dealings with them have been nothing short of terrible. Granted, I do know there are PE firms that exist and can make the best of their investments over the long haul. But the reality for Arm is they need significantly more money than PE firms would be willing to invest in order to push their innovation efforts forward in the growth areas identified by Arm and Nvidia.
Joint Venture/Consortium: Those who know their history will recall that Arm was initially invested in and “owned” by a series of companies including Apple. Qualcomm has already pledged ~$40m to invest in Arm if need be. I imagine other partners and customers, including Nvidia, would front some money to keep funding Arm’s innovation. The challenge that will be brought out in this solution is how slow consortiums will move around joint IP decisions and technologies like Arm that function as a standards body. Could Arm IP be invested in by the partner ecosystem and provide a standardized IP framework like FRAND? Possibly. Would it be extremely complicated? Yes.
While none of these options are truly ideal, a JV/consortium where Arm’s customers, partners, and the ecosystem at large can invest in Arm’s future is the most likely candidate should regulators block Nvidia’s acquisition. But an overarching point needs to be made when having this discussion. Arm needs strong financial backing to keep spending the necessary R&D to keep innovating on the architecture and empower the Arm ecosystem to compete with x86. Arm is also looking to make a run into new categories like automotive, robotics, IOT/edge computing, AR/VR, and more.
Arm’s success depends entirely on its ecosystem and customer success. And much of that success today is predicated on the collaboration and partnership of Arm’s partners. Any future for Arm going forward has to include deep collaboration with its customers and operating as a neutral entity and not within the agenda of any single company. A neutral and independent Arm is essential if the technology and the ecosystem are to reach their true potential and reach. That point will remain true regardless of whether it has a single owner or many.