Chinese Regulators Could Target Nvidia’s $40 Billion Arm Acquisition, Say Analysts

According to analysts, the efforts of Nvidia to purchase United Kingdom based chipmaker Arm from SoftBank for $40 billion could face a major barrier from regulators in China.

The two companies had announced the deal in September beginning. It is expected that if the deal gets through it would create the largest chip company in the West in terms of market value and global reach.

But multiple Chinese regulators including China’s Ministry of Commerce (MOFCOM) and China’s State Administration for Market Regulation (SAMR) have the opportunity to scan the deal and therefore the deal is far from being home and dry.

“Technically, Beijing can block the deal,” said Abishur Prakash, a geopolitical specialist at the Center for Innovating the Future, a Toronto-based consulting firm.

On previous occasions too, the attempts of a US company trying to purchase a European player have been prevented by Chinese regulators. Qualcomm’s attempt to buy Dutch chipmaker NXP was blocked by SAMR in 2018.

Chinese regulators “will seek to extract specific guarantees before granting approval”, said Bill Ray, a senior director analyst at research firm Gartner.

He added that “some of these guarantees may be beyond the ability of Nvidia to provide” – specifically pointing out to the ongoing provision of Arm’s intellectual property (IP) to Chinese businesses.

The likely argument to assure Chinese regulators from Nividia would be to point out that Arm’s technology is British and that it would make investments in the UK in the future which will help to keep the technology that way.

But it’s not that straight forward.

“Provision to China should not be an issue.” he said. “However, this neglects the influence that the U.S. has on the U.K., and the ability of the U.S. administration to influence companies outside its obvious jurisdiction.”

“It should be no surprise that China is expected to be a high hurdle for regulatory clearance “China’s tech industry has been built on Arm so it has a vested interest in the status quo, particularly when the proposed scenario is ownership by a U.S. company,” said Geoff Blaber, a vice president of research at analyst firm CCS Insight.

“Regulatory scrutiny is inevitable, and the ownership structure of Arm Technology China adds further complexity,” Blaber added.

There were no comments on the issue available from MOFCOM, SAMR and the Chinese embassy in London.

A previous statement by Nvidia CEO Jensen Huang in which he expressed confidence of the deal going through was pointed out by Nvidia.

“Nvidia, Arm and SoftBank are confident that all regulatory approvals will be secured,” said a spokesperson for Arm.  

A joint venture called “Arm China” with Chinese private equity firm Hopu Investments also exists for the Cambridge-headquartered firm. And since the headquarters of Arm China is in Shanghai, therefore the right to review the proposed Nvidia deal exists for China’s regulators.

A US company could not be trusted with ownership of Arm, said Zhu Jing, the vice-chairman of the Beijing Semiconductor Association.

“Look at how the U.S. is treating Huawei,” he told The Paper, a Chinese digital publication owned by the state, in September. “If Arm is acquired by a U.S. company, everyone will be worried.”

(Adapted form CNBC.com)

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