NVIDIA’s bid for ARM: How the acquisition of an ecosystem catalyst fuels geopolitical battlegrounds
September 29, 2020
The $40bn bid from on September 13 of NVIDIA for ARM— a Cambridge based semiconductor and software company- fuels geopolitical battlegrounds in the fiercely competitive digital world.
ARM, an unknown yet omnipresent player among tech giants, is at the heart of the computing and data revolution that transforms the way people live and businesses operate. ARM makes blueprints for computer chips and sells them to over 1,000+ tech companies. Its advanced, energy-efficient processor designs have enabled intelligent computing in 180 billion chips made by consumer-hardware giants and chip companies. These include industry leaders such as Apple, Huawei, Broadcom, and Qualcomm to whom it licenses its designs and get loyalties to sales of every product containing its designs such as phones, televisions, watches, and all types of IoT devices.
Ecosystems evolve through serendipity and self-organization. However, a leading firm sometime emerges as an architect and catalyst that guides the development of an ecosystem where partners benefit from joint learning and align their investments out of self-interest. ARM plays such a tactical role in the semiconductor industry by licensing its IP to the silicon partners that develop digital electronic products for the mass market; by collaborating with design partners that generate more design flows easy to integrate; by listening to original equipment manufacturers to understand their requirements; and by working with software developers to create operating systems aligned by its architecture. It then makes blueprints of chips that power all these players' innovations.
In 2016, this crown jewel of the UK tech industry was acquired by SoftBank for $32bn, the highest price ever paid for a European technology company, and is now being sold to NVIDIA—its American customer that makes power-hungry specialized chips for gaming consoles, high-end vehicles, and data centers. In my opinion, this brings three unwelcomed challenges to ARM that are going to challenge its leading role in the ecosystem:
Start with neutrality. ARM has been dubbed the “the Switzerland of the semiconductor industry”: not only does it avoid directly competing with its customers, but it has also scrupulously remained neutral in constant battles between them. I believe that SoftBank’s move to sell it will undermine its neutrality, mostly as it’s being sold to one of its customers. In this way, other companies trust in ARM as a neutral ecosystem coordinator and facilitator might quickly evaporate.
Second, the China-US trade disputes. The entire Chinese tech industry depends on ARM. 51% of its China operations are owned by Chinese investors that include state-backed funds. With the US continually choking Chinese tech giants— lately Huawei and TikTok— this deal puts more power in the hand of the US. I expect that China, as a reaction, is very likely to boost its self-sufficiency in the semi-conductor industry. For instance, Chinese regulators are likely to introduce a poison pill like requiring a 100% stake in ARM China Operations before they sign off on the deal.
Finally, this deal is likely to have an impact on the UK. When it bought ARM, SoftBank had agreed to double investments and headcount in Cambridge until September 2021 to preserve its UK identity. It remains unclear what NVIDIA will do afterward. In the middle of trade deal negotiations with the EU, I expect quite some resistance to this deal in the UK. ARM, becoming an American tech company, will is likely to have a negative impact on UK companies that use ARM’s technology should the US bar them from selling to China, a significant market for many UK companies. It might also shift some high paid jobs from the UK to the US. I would not be surprised if the UK opposed the deal for economic and national security reasons and opted for re-listing ARM publicly backed by the taxpayers. This is a slippery slope as it would also undermine UK’s image in terms of investment openness.
From a little known and yet omnipresent company, ARM is a hot topic of discussion among tech, regulatory, trade, & geopolitics analysts. As a central ecosystem player, NVIDIA's proposed acquisition will be scrutinized and approved by regulators in every country where it does business. It is destined to be used for geopolitical power plays, ranging from the US and China's ongoing trade disputes to Brexit. With geopolitics twisting global business, it will be interesting to see how the digital economy will fare in an increasingly changing business environment and how prominent ecosystems will organize themselves to adapt.
 Williamson, P. J. and De Meyer, A. (2012) ‘Ecosystem Advantage: How to Successfully Harness the Power of Partners’, California Management Review, 55(1), pp. 24–46. doi: 10.1525/cmr.2012.55.1.24.