NVIDIA to Acquire CPU Designer ARM for $40B in the Largest Semiconductor Acquisition in History

eResearch | Earlier this month, NVIDIA (NASDAQ: NVDA) announced a $40 billion acquisition of Arm, a U.K. semiconductor company focused on designing central processing units (“CPU”) and licensing out intellectual property (“IP”). SoftBank Group (TYO: 9984; OTC: SFTBY), a Japanese holding company, acquired Arm for $32 billion in 2016.

The press release stated,

“The 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.”

If NVIDIA successfully acquires Arm, it may significantly change the semiconductor industry’s competitive landscape. Arm’s CPU designs are used by several of NVIDIA’s competitors, including Advanced Micro Devices (ETR: AMD) and Intel (NASDAQ: INTC).

NVIDIA’s stock is currently trading at $516.38 per share, a 6% increase since announcing the acquisition and a 197% increase in the past year. NVIDIA has a market capitalization of $331 billion.

SoftBank’s stock is currently trading at 6,341 JPY per share, an 8% increase since the acquisition was announced, and a 50% increase in the past twelve months. SoftBank has a market capitalization of $127 billion.

Acquisition Details

NVIDIA plans to continue operating Arm’s neutral open-licensing model to ensure fair competition while leveraging NVIDIA’s technology to expand Arm’s IP licensing portfolio.

In addition, NVIDIA plans to support Arm in building a world-class AI research and education center in Cambridge, U.K.

The new AI research and education center will include a supercomputer powered by Arm, a training facility, and a start-up incubator. The center is expected to focus research on AI technologies in healthcare, robotics, and autonomous vehicles.

The acquisition does not include Arm’s IoT Services Group segment, which was recently spun off into two separate entities owned by SoftBank. The IoT Services Group segment includes Arm’s $600 million acquisition of Treasure Data, an enterprise data management company acquired in 2018.

The $40 billion transaction includes:

$21.5 billion in NVIDIA
$12 billion in cash, with $2 billion paid upon signing and $10 billion paid upon close of the deal.
$5 billion in cash or NVIDIA shares, under a performance-based earn-out agreement subject to Arm reaching specific financial targets.
$1.5 billion in NVIDIA shares issued to Arm

Following the transaction, SoftBank will retain an equity stake in NVIDIA of less than 10%.

The transaction is expected to close in approximately 18 months, upon receiving regulatory approvals from the U.K., China, the European Union, and the U.S.

ARM

Arm, previously known as Advanced RISC Machines, was incorporated in 1990 with backing from partners including Acorn Computers, Apple (NASDAQ: AAPL), and VLSI Technology.

Arm is best known for designing processors for smartphones, as its technology is used by leading manufacturers such as Apple, Samsung (KRX: 005930), and Qualcomm (NASDAQ: QCOM).

Last year, NVIDIA announced a partnership with Arm to integrate the open-source NVIDIA Deep Learning Accelerator architecture into Arm’s Project Trillium platform. The partnership allowed NVIDIA to integrate artificial intelligence (“AI”) into chips designed for the internet of things (“IoT”) more efficiently.

Arm currently has over 1,000 partners that use its energy-efficient processor designs. To date, Arm’s licensees have shipped over 180 billion chips across the world for products in various industries.

NVIDIA

NVIDIA is a semiconductor company focused on graphics processing units (“GPU”), which are mainly used in gaming, professional visualization, data centers, and automobiles.

NVIDIA is currently concentrating efforts on growing its data center business, as it acquired Mellanox Technologies for $6.9 billion last year. Mellanox is a leading supplier of interconnect solutions that improve data center efficiency by increasing throughput and decreasing latency.

The acquisition of Arm will allow NVIDIA to complement its data center offerings by integrating Arm’s CPU designs into NVIDIA’s GPU and AI technologies.

NVIDIA also plans to leverage Arm’s technologies to expand and target markets such as autonomous vehicles, cloud computing, IoT, and robotics.

In the press release, Jensen Huang, CEO of NVIDIA, said

“Simon Segars and his team at Arm have built an extraordinary company that is contributing to nearly every technology market in the world. Uniting NVIDIA’s AI computing capabilities with the vast ecosystem of Arm’s CPU, we can advance computing from the cloud, smartphones, PCs, self-driving cars and robotics, to edge IoT, and expand AI computing to every corner of the globe.”

Global Microprocessor and GPU Market

The global microprocessor and GPU market is quickly growing as demand increases for technologies such as AI, cloud computing, data centers, IoT, and autonomous vehicles.

According to MarketsandMarkets Research, the global microprocessor and GPU market is estimated to reach $79 billion this year. By 2025, the market is expected to reach $113 billion, growing at a CAGR of 7.3% from 2020.