The century of mergers and acquisitions in the chip industry, which has been delayed for nearly a year and a half, has completely failed.
According to Reuters reported on the 8th, SoftBank's transaction to sell british high-tech chip design company ARM to the US chip giant Nvidia has failed.
The most intuitive impact of the failure of the transaction on NVIDIA is first reflected in the stock price.
In a pessimistic anticipation of the deal to buy ARM, Nvidia fell more than 30 percent over the two-month period from the end of November 2021 to the end of January 2022, with the stock price falling from a peak of nearly $350 to $209.
On January 25, Bloomberg said that due to multiple opposition, Nvidia's acquisition of ARM had made almost no progress in approval, resulting in Nvidia preparing to abandon the deal. SoftBank Group is preparing ARM's first IPO as an alternative. The news caused Nvidia's stock to plunge 4.5% on the day.
After the boots landed, NVIDIA's stock price has recently turned upward. It closed up 1.7% last night at $247, trading at $9.3 billion, with the latest total market capitalization at $618.2 billion.
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There is a lot of resistance
Nvidia announced the acquisition of ARM as early as September 14, 2020, because the acquisition method was cash plus shares, so it corresponded to a $40 billion acquisition agreement at the time, and then as Nvidia's stock price rose, it once appreciated to $87 billion in November last year.
This is the largest transaction ever made by the chip industry, and the three parties to the transaction, Nvidia, SoftBank and ARM, have all benefited from it.
For Nvidia, the acquisition of ARM means controlling the company that contributes core chip technology to most of the world's mobile devices; SoftBank can get a huge return on investment; for ARM, backed by Nvidia will bring more cash flow and technical support.
However, the deal was difficult to execute because of the unanimous opposition of regulators and competitors in various countries.
On the one hand, ARM customers such as Google, Microsoft and Qualcomm and NVIDIA's competitors oppose the deal because of the huge impact on the industry after the combination of the two.
NVIDIA already has a large share of the GPU market, ARM has an advantage in the field of mobile low-power CPUs, and more than 90% of the world's mobile phone chips and loT chips use ARM architecture.
After the combination of the two, the solution of ARM CPU + NVIDIA GPU will affect the competitive landscape of the entire chip industry. The first thing to do is probably Intel out.
Secondly, ARM's more than 500 large customers include Qualcomm, Apple, Google, Amazon, Tesla, Samsung, MediaTek, Broadcom, Huawei and other world-renowned technology companies, which need to purchase ARM licenses for chip design.
ARM's neutral stance was the reason for its previous access to a large number of orders, and these customers were certainly not happy to see ARM completely controlled by Nvidia, so they submitted objections.
On the other hand, the acquisition needs to be reviewed by regulators from the United Kingdom, the United States, the European Union, and China, but it is also opposed by many countries.
Last year, the UK's Competition and Markets Authority and the EU's antitrust regulator successively said the acquisition could disrupt the chip industry's competitive landscape and push up global chip prices. The Chinese government will apparently not support the acquisition either, as ARM has been involved in Trump administration sanctions against ZTE and Huawei over the past few years.
What finally dealt a fatal blow to the acquisition was a document issued by the U.S. Federal Trade Commission on December 2 last year, saying that it would formally file an administrative lawsuit against Nvidia's acquisition of ARM on August 9, 2022.
The date of NVIDIA's acquisition of ARM will close a month after the lawsuit was filed, so the former can only accept the failure of the transaction.
02
The road ahead is long
After the dust settles, let's look at the impact of the termination of the acquisition.
Arm's first impact was a drastic change in management, with Simon Segars stepping down as CEO and Rene Haas, head of ARM's intellectual property department, replacing him as CEO.
The impact on seller SoftBank is likely to be minimal, and while no larger investment gains will be possible, Nvidia's original $1.25 billion in advance will be a "break-up fee" that SoftBank will receive in the failed deal.
SoftBank is said to turn to ARM for an IPO before the end of the year. The chip industry does not mind arm being controlled by this Japanese consortium, but Son Zhengyi is eager to get rid of this "baggage" to cash out, in order to "stop the bleeding" for SoftBank.
Today, SoftBank Group released its financial results for the third quarter of fiscal 2021 ended December 31. In the third fiscal quarter, SoftBank's net profit was 29 billion yen, down 99.9% compared to the same period last year, the data showed.
The reason for the sharp decline in profit was that the investment business income was less than expected, and the investment income in the quarter was only 111.45 billion yen. According to the earnings report, many companies in the Vision Fund's fiscal third-quarter portfolio had shares below their listing prices. Among them, the stock prices of office sharing company WeWork, ride-hailing software Grab and used car platform Auto1 all fell this quarter.
The investment returns of these unicorn companies, which have been catalyzed by the pandemic, are declining as central banks begin to scale back fiscal and monetary stimulus amid inflation expectations, benefiting from the fact that stocks in the tech sector are the first to kill valuations. Coupled with SoftBank's failure in China's online education, online real estate and other fields, it is tantamount to worse.
In fact, SoftBank's own performance in the stock market is also a big surprise. So far in 2021, its ADR price has fallen by nearly 60%. Compared to the February 2021 high of $50, it is currently only $23.
Successive investment failures have forced SoftBank to consider selling alibaba, ARM and other high-quality assets.
Nvidia is in much better shape. According to the third quarter earnings released last week, Nvidia's third-quarter revenue was $7.1 billion, more than the expected $6.81 billion, an increase of 50% compared to the same period last year. Net profit was $2,464 million, up 84% compared to the year-ago quarter.
Strong growth was driven by strong gaming and data center businesses, which together contributed $6.16 billion in revenue to Nvidia. The heat of the game industry under the epidemic has caused Nvidia graphics cards to outstrip demand, making its stock price out of the opposite trend of SoftBank, with a maximum increase of nearly 160% in 2021.
However, the current priority before Nvidia and the American technology giants represented by FAANG is undoubtedly to seize the opportunity of the meta-universe.
NVIDIA's accumulated technologies in speech AI, computer vision, natural language understanding, recommendation engines, and simulation technologies have established a natural advantage for its path into the metaverse.
For Nvidia, the failure to acquire ARM is indeed a heavy blow, but it is far from the point of breaking the bones.
(Data source: NVIDIA financial report, Apu Research Institute)
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epilogue
Overall, the impact of the acquisition of ARM on NVIDIA was not as great as expected.
After all, in the past two years when the virtual economy has been popular under the epidemic, NVIDIA's stock has risen to the sky. The market capitalization spurred on by this news alone makes the $1.25 billion advance payment seem insignificant.
Arm, despite losing the huge cash flow behind Nvidia, can still maintain neutrality in serving the global technology leaders.
The most unhappy is probably SoftBank and Son Zhengyi, after all, the $40 billion to the mouth is flying like this, and the 1.25 billion "breakup fee" does not seem to be so thirst-quenching.
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