ARM Candy

Nvidia

Image source: JerryDeutsch - Shutterstock

What's going on?

N’aww, sweet: microchip maker Nvidia agreed to buy microchip designer ARM in the biggest takeover deal the industry’s ever seen.

What does this mean?

UK-based ARM doesn’t actually manufacture its own microchips, but instead licenses its code to the likes of Intel, Samsung, and Huawei. That means you’re never far from one of their designs: your phone, your car, and your TV are all likely to be stuffed full of them.

The deal will see Japanese conglomerate SoftBank – the company’s owner – receive an initial $12 billion in cash and $21.5 billion in Nvidia shares, turning it into one of the chipmaker’s biggest investors. And if ARM’s able to meet its future performance targets, the agreement’s collective value could rise even further – to as much as $40 billion.

Why should I care?

For markets: Business as unusual.

Nvidia’s generally focused on graphics processors for gaming equipment, but more recently, it’s found success expanding into chips for data centers, cars, and artificial intelligence. And investors have encouraged its ambition, driving the company’s market value to over $300 billion – 50% more than industry stalwart Intel (tweet this). Looks like they’re still keen too, given that Nvidia’s shares initially rose 9% after the announcement. That’s unusual: a seller’s shares tend to rise when a takeover deal’s struck – like SoftBank’s did, climbing 9% on Monday – but the buyer isn’t normally so lucky. Nvidia’s gain, then, could be a ringing endorsement of its overall expansion strategy.


The bigger picture: Craving approval.

Investors might be getting ahead of themselves: there’s no guarantee antitrust regulators will actually approve the deal, and Nvidia will need clearance from the European Union, the US, the UK, and China. The latter in particular could block the move if the US trade war heats up again, while Britain – which has introduced a new prime minister since SoftBank bought ARM in 2016 – reportedly wants to back homegrown champions to take on Silicon Valley. And that means it may be reluctant to part with the jewel in its chipmaking crown…

Originally posted as part of the Finimize daily email.

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