NVIDIA-ARM is OFF?!?

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https://arstechnica.com/gadgets/2022/02/nvidia-abandons-66-b…

SoftBank’s $66 billion sale of UK-based chip business Arm to Nvidia collapsed on Monday after regulators in the US, UK, and EU raised serious concerns about its effects on competition in the global semiconductor industry, according to three people with direct knowledge of the transaction.

The deal, the largest ever in the chip sector, would have given California-based Nvidia control of a company that makes technology at the heart of most of the world’s mobile devices. A handful of Big Tech companies that rely on Arm’s chip designs, including Qualcomm and Microsoft, had objected to the purchase.

SoftBank will receive a break-up fee of up to $1.25 billion and is seeking to unload Arm through an initial public offering before the end of the year, said one of the people.

The failure is set to result in a management upheaval at Arm, with chief executive Simon Segars being replaced by Rene Haas, head of the company’s intellectual property unit, the person added.

The collapse of the deal robs SoftBank of a big windfall it would have earned thanks to a boom in Nvidia’s stock price.

The cash-and-stock transaction was worth up to $38.5 billion when it was announced in September 2020. But the value soared as Nvidia’s shares took off, reaching a peak of $87 billion last November.

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In the UK, where politicians have viewed Arm as a strategic national asset, attention is set to shift to whether the company will be listed on the country’s domestic market. A British competition review into the deal was extended late last year to include national security considerations.

However, people close to SoftBank said the group prefers the idea of listing Arm in New York and will seek to resist nationalistic pressure. US markets accord higher valuations to tech stocks, even after a recent sharp reversal, and UK tech executives recently pressed for changes to listing arrangements to make London more attractive.

Nvidia decided to abandon its pursuit of Arm at a board meeting earlier on Monday, said a person familiar with the discussion. Nvidia’s pursuit of Arm marked an opportunistic attempt to score an end-run around chip rivals such as Intel and AMD, and it was prompted by an approach from SoftBank after the Japanese company decided to shed the business.

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Nvidia’s loss is private investor’s gain, if ARM floats and the price is right. That’s my hope anyway.

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Nvidia’s loss is private investor’s gain, if ARM floats and the price is right. That’s my hope anyway.

That was my thought as well. I’ll be on the lookout for an investing opportunity.

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IMO, Nvidia + ARM would have become more valuable together, than each part separately. I’m selling most of my NVDA. I feel ARM will be a good investment, but will be priced too high at IPO.

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I’m selling most of my NVDA.

I wonder whether that’s an over-reaction. NVDA is still the virtual owner of AI and GPUs and has lots of potential in those areas. Certainly if they had a way to undermine x86 via ARM they would be even stronger, but it’s not like that was the whole road forward for the company, and nothing prevents them from becoming a hugely influential contributor to the Arm ecosystem.

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I think AMD has shown how CPU+GPU with a design that helps both work together can gain advantages over products that just use one half. I suspect that some of AMD’s server gains comes from this synergy. Intel’s GPU is still catching up. NVidia is already in the data center, as is ARM, but they’d need at least one full design cycle to produce a synergistic product. I considered the merger a long term risk on the scale of Intel to owning AMD. Thus, AMD’s long term risks are greatly diminished.

Since NVidia called off the merger, followed by a new ARM CEO, I think there is some chance that the old CEO was the sticking point, and perhaps a new deal will be struck reflecting NV’s greatly increased stock price. I think a LOT of that increase was merger based, because NVARM would be much better positioned post merger. So it may be reopened with stock value at $X, and if NV goes up from X, only a percentage of that increase would be windfall for ARM.

This is all wild speculation on my part, but I think Wayne has the right of it. I was concerned about ARM as an AMD risk before the merger, and I remain concerned. If AMD’s new graphics products improve as much as hinted, NVidia may have problems. In a way, NVidia is now fighting both for CPUs and GPUs without much helping them in the data center. If either Intel or AMD comes up with DC GPUs that integrate even better with their CPUs, NVidia could lose all their DC business, and why would Intel or AMD work closely with NV to improve server products instead of working with their own GPU teams? This is a deal NV needed, and likely a deal ARM needed. For AMD’s stake I’m glad it fell through.

I will soon be looking for new investments to make after the AT&T split (and the drop in AT&T’s dividend). I regret staying in T after every single bit of news about that spinoff has been about as bad as it could be for AT&T investors, especially AT&T dividend investors. I should probably look at all the stocks mentioned above.

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The latest AMD Instinct accelerators look VERY good. The wins with supercomputers also bodes well for the company. OTOH I think it is more about the software than the hardware; that seems to be a constant in the industry. It is up to AMD and Intel to break the CUDA monopoly.

As an example, I was surprised to learn that both Nvidia and Intel sell a turnkey box that is specifically designed to sit between a bank of cameras and the cloud. I wonder how many other applications there are that they have developed custom solutions for.

While Intels “Big Spend” is weighing heavily on their earnings, it adds significant risk to both Nvidia and AMD. In the short term, they are all going to do well due to supply constraints, but the longer term is very fuzzy.
Alan

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I wonder whether that’s an over-reaction.

Maybe. I should have realized the deal was dead when the FTC sued to block it on Dec 2 (NVDA $321.26). Looks like many investors are “selling the rumor, and buying the news”.

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Richard,

I will soon be looking for new investments to make after the AT&T split (and the drop in AT&T’s dividend). I regret staying in T after every single bit of news about that spinoff has been about as bad as it could be for AT&T investors, especially AT&T dividend investors. I should probably look at all the stocks mentioned above.

I’m not familiar with the details of this particular transaction, but spin-offs usually result in (1) shareholders of the parent company getting proportional shares of the child, with the basis apportioned between them, and (2) the combined dividend continuing to grow from the dividend before the split. So if you are buying dividends, you might do well to keep both.

Norm.

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Wayne,

Looks like many investors are “selling the rumor, and buying the news”.

Sounds more like speculators than investors to me…

Norm.

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I think there is some chance that the old CEO was the sticking point, and perhaps a new deal will be struck reflecting NV’s greatly increased stock price.

No way. The regulatory landscape is unchanged.

Nvidia will certainly become a top-tier Arm licensee similar to Apple and probably build many of the same products they had in mind to make a run at the data center CPU market. I wouldn’t be surprised if they made a run at mobile as well. Plenty of opportunity to go forward. They won’t make as much money out of doing so but they will continue to try to undermine x86 in data center, since that’s where the money is.

They may also do more with the RISC-V ecosystem, where they’d have an easier time owning all the relevant IP, but that’s a few years out. Design CPUs that can do well with either RISC-V or Arm instruction sets.

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Norm,

AT&T is cutting their dividend from $2.08 per year to $1.11 per year as part of the spinoff. Time-Warner + HBO Max + Discovery will have a dividend of their own, plus decent FCF, but are taking in $43B of T’s debt, and like many T investors, the dividend slash (much deeper than previously announced) plus the relatively few shares I’ll get in the new content company (about half of what I expected from 71% of the new company) makes me feel deceived for having stuck it out this long. If the CEO gets more stock options, I expect there to be lawsuits. But I think both companies will be very viable, and if so stock price increases will make up for the loss of dividends and lack of adequate compensation for the spin off, so I’m sticking with things until after the spinoff and then may sell one or both companies if I think I know better investments.

Richard