FTC Sues Nvidia To Block ARM Acquisition

The United States competition regulator has joined the ‘stop Nvidia buying ARM’ party, after interventions by British and European regulators.

The Federal Trade Commission (FTC) announced on Thursday that it is suing GPU powerhouse Nvidia to stop its $40 billion acquisition of British chip designer ARM Holdings.

The move comes after the British government ordered last month a full Phase two investigation of the deal, amid strong signs the UK government could block the deal on national security grounds.

FTC lawsuit

The European Commission meanwhile also opened its long-touted probe in October, despite Nvidia offering it some undisclosed concessions.

British chip designer ARM is hugely important technology player, as ARM designs power 95 percent of the world’s smartphones, and there is concern at ARM’s sale to a single chip supplier could give Nvidia too much leverage in the market.

Indeed, the FTC in its announcement of the lawsuit, said that the “proposed vertical deal would give one of the largest chip companies (Nvidia) control over the computing technology and designs that rival firms rely on to develop their own competing chips.”

The FTC’s complaint alleges that the combined firm would have the means and incentive to stifle innovative next-generation technologies, including those used to run data centres and driver-assistance systems in cars.

“The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies,” said FTC Bureau of Competition Director Holly Vedova.

“Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets,” said Vedova. “This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals. The FTC’s lawsuit should send a strong signal that we will act aggressively to protect our critical infrastructure markets from illegal vertical mergers that have far-reaching and damaging effects on future innovations.”

The FTC complaint noted that ARM is often dubbed the “Switzerland” of the semiconductor industry, as it creates and licenses microprocessor designs and architectures, to other technology companies, including Nvidia.

“Because Arm’s technology is a critical input that enables competition between Nvidia and its competitors in several markets, the complaint alleges that the proposed merger would give Nvidia the ability and incentive to use its control of this technology to undermine its competitors, reducing competition and ultimately resulting in reduced product quality, reduced innovation, higher prices, and less choice, harming the millions of Americans who benefit from Arm-based products,” the complaint alleges.

The FTC complaint alleges the acquisition will harm competition in three worldwide markets in which Nvidia competes using Arm-based products:

• High-Level Advanced Driver Assistance Systems for passenger cars;
• DPU SmartNICs; and
• Arm-based CPUs for Cloud Computing Service Providers.

The complaint also alleges that the acquisition will harm competition by giving Nvidia access to the competitively sensitive information of Arm’s licensees, some of whom are Nvidia’s rivals, and that it is likely to decrease the incentive for Arm to pursue innovations that are perceived to conflict with Nvidia’s business interests.

The FTC voted 4-0 to sue Nvidia, and the administrative trial is scheduled to begin on 9 August 2022.

The FTC said that throughout the investigation, its staff has co-operated closely with staff of the competition agencies in the United Kingdom, the European Union, Japan, and South Korea.

For its part, Nvidia has promised that it would keep Arm’s existing open licensing model.

Unpopular acquisition

The acquisition has been opposed by one of ARM founders, Tudor Brown, as well as Hermann Hauser (involved in the development of the first ARM processor when it was part of Acorn).

Both men said the company should not be sold to a semiconductor firm, but should remain a neutral supplier to the industry.

It should be remembered however that Japan’s SoftBank had acquired ARM for $32bn in 2016, which also prompted political concern in the UK at the time, with politicians urging the government to step in to ensure that ARM remained headquartered in Cambridge.

But the tech industry now remains concerned at ARM being acquired by chip giant Nvidia, and it’s proposed acquisition is being fiercely opposed by tech giants such as Alphabet, Microsoft, and Qualcomm.

Google, Microsoft and Qualcomm all manufacturer their own inhouse processors, and depend upon ARM chip designs.

However in early July ARM’s CEO, Simon Segars, strongly defended the deal, and said it was the best outcome for the British chip designer, and was a better solution than an IPO.