This week witnessed the biggest semiconductor deal ever made (by dollar value atleast) – US chipmaker NVIDIA announced that it would be acquiring Cambridge-based Arm for $40bn in a part cash-part stock deal. This combination brings together NVIDIA’s leading AI computing platform with Arm’s vast ecosystem to create the premier computing company for the age of artificial intelligence, accelerating innovation while expanding into large, high-growth markets. 

Arm is renowned for licensing designs, commonly known as instruction set architectures – blueprints for CPU chips, whose customers include Apple, Samsung, Qualcomm, Huawei and Google among others. The company’s designs are found in 90% of smartphone processors worldover. In addition, Arm processors are used in a range of smaller devices like thermostats, watches and more. According to the company, to date, a total of 180 billion computers have been built with Arm; 22 billion last year alone – making Arm the most popular CPU in the world.

With NVIDIA’s AI capabilities and Arm’s CPU market reach, practically every device will have the most cutting edge AI and high speed compute abilities, engaging a tremendous AI opportunity and advance computing from the cloud, smartphones, PCs, self-driving cars, robotics, 5G, and IoT. NVIDIA’s R&D will accelerate data center, edge AI and IoT opportunities, said NVIDIA CEO Jensen Huang in a letter to his employees.

Arm will continue to function out of Cambridge, UK where NVIDIA will build a world-class supercomputer powered by Arm CPUs. This will be a huge attraction to researchers and scientists doing cutting edge work in robotics, healthcare and lifesciences, and self driving vehicles among others.

Huang believes this acquisition is a step towards creating a new internet some day – an internet-of-things that will be “thousands of times bigger than today’s internet-of-people”.

Edging The Lead In The Datacenter Business

While Intel’s data center business generates $20bn in sales, NVIDIA’s data center business is growing very quickly. Business generated nearly $3bn in revenue in 2019, up from $830mn in 2016. In April, NVIDIA edged out Intel to acquire Israeli company Mellanox for $6.9bn. Mellanox makes the hardware that transmits data between chips. In July 2020, NVIDIA’s market valuation soared past Intel, for the first time, in terms of demand for graphics chips in datacenters. Bringing its AI to the data center is one of the cornerstones for NVIDIA; and this acquisition of Arm has only extended its lead over competitors.

The demand for data centers is only rising, and they’re moving to the cloud with added AI capabilities, making the joint offering of NVIDIA’s AI and Arm’s designs quite irresistible. With a stronghold in AI and mobile, NVIDIA and Arm are poised for the next wave in business transformation that will be powered by high performance cloud compute over 5G networks. Analysts believe that with Arm designs now finding their way into datacenters, NVIDIA could be getting into a whole new field of computing that witnesses a seamless blend of CPU and AI architectures.

Open Licence, China and More

One of the clauses of the deal was that Arm will continue to operate its open-licensing model while maintaining the global customer neutrality that has been “foundational to its success”. Moreover, Arm customers will now get access to NVIDIA’s range of products and innovations, which would likely mean that Arm customers would have to shell out more for the added suite of AI capabilities in the chips. Many of these companies are direct competitors of NVIDIA like Qualcomm and Broadcom among others.

Another important angle to this acquisition is how it affects China. Let’s not forget that the NVIDIA-Arm deal still needs regulatory approval from the European Union, USA, China and United Kingdom. If it pulls through, an American company would be one of the biggest players in the semiconductor industry - which may not sit well with China. Recently, the country tweaked its export rules for “dual use technologies” that was expected to put a wrench in the talks by US companies to acquire TikTok. This was after US President Trump issued an executive order to shut down TikTok’s parent company Bytedance, citing security concerns.

The acquisition of Arm by NVIDIA heightens the tech standoff between USA and China. A Global Times op-ed stated that if this deal gets all regulatory approvals, Chinese technology companies would be at an undue disadvantage. China’s approval is very critical – lack of it could thwart a deal like Qualcomm’s proposed takeover of Dutch semiconductor company NXP that works closely with Chinese tech companies. And this deal was $44bn.

While there is still some time to see how China could change the dynamics, let us just take a moment to understand the true significance of this development for AI and high performance computing. For NVIDIA, which is still synonymous with its dominance over the PC gaming market, has over the years forayed into AI and high performance computing and emerged hugely successful. With this acquisition, NVIDIA's fast rising datacenter capabilities will be a notch above the rest, and a leader like Huang will likely see take this division to be a market leader like the others.