ARM To Nvidia Sale Confirmed As Softbank Accepts $40 Billion Bid

The sale of UK founded and based Arm Holdings from Softbank to Nvidia has been confirmed after a $40 billion cash plus shares bid from the world’s largest semiconductor company was accepted. It’s only four years since Softbank, often referred to as the world’s biggest technology investor, acquired Arm, also paying $40 billion. But the Japanese investment vehicle has chosen to divest itself of the asset as a result of pressure to reduce its debt levels.

Arm Holdings, which designs the high-tech microprocessors found in billions of electronic gadgets around the world, has long been considered the UK’s most successful ever technology company. Its original sale into foreign ownership in 2016 was controversial but Softbank retained Arm’s Cambridge headquarters and UK operations. However, concern has been expressed in some quarters that the new American ownership may be less respectful of Arm’s Cambridge roots.

Hermann Hauser, the Austrian-born entrepreneur who is one of Arm’s founders, warned last night after news broke the deal with Nvidia had been confirmed that he expects the U.S. giant to scale back on jobs in Cambridge. He also cautioned that he expects Nvidia to upend Arm’s historical business model of acting as a neutral supplier of intellectual property to semiconductor makers around the world.

Nvidia’s official line rejected that suspicion, with the company this morning not only promising to keep Arm based in the UK and maintain its brand but to hire more staff. Nvidia chief executive Jensen Huang boasted that the acquisition will position Nvidia as “the premier computing company for the age of artificial intelligence”.

Mr Huang also reassured that Arm’s headquarters would remain in Cambridge and, in contrast to the concern expressed by Mr Hauser, will also continue to license its technology to other chipmakers. Mr Hauser and other critics of the deal believe that position may change in future, with Nvidia seeking to gain an advantage on its competitors by taking Arm’s latest designs off the wider market.

Mr Hauser expects Arm to now operate within the confines of the US’s Committee on Foreign Investment legislation that allows policymakers to block American companies selling key intellectual property to overseas customers on security grounds.

This morning he told BBC Radio that he also considers promises on jobs as empty pledges without legally enforceable conditions. He illustrated his point by referencing the Kraft’s decision to close one of Cadbury’s British factories within months of acquiring it in 2010, despite also pledging to retain jobs at the point the deal was completed. Nvidia also has previous, closing down Bristol-based semiconductor company Icera four years after buying it.

Arm’s semiconductor designs are used in as many as 95% of all smartphones on the market. The company’s IP is also making strong inroads into other markets such as PCs, servers and IoT devices, which are becoming increasingly common.

The rise in demand for microchips, especially those that rely on Arm designs, prompted Softbank CEO and founder Masayoshi Son to call his acquisition of the company “the single most important deal in my life”. But after a series of financial hits from bad investments, Arm also proved one of Softbank’s most sellable assets as pressure has mounted for the company to reduce its debts.

A silver lining for Softbank is that it will continue to have investment exposure to Arm’s future success. Already a major investor in Nvidia, the shares the Japanese company will receive as part of the deal will make it the U.S. giant’s largest single investor. Softbank may well do financially better as a shareholder of Nvidia than it has as the owner of Arm.

Despite booking a small profit on the sale, there is a strong argument Arm has underperformed under Softbank’s ownership. Four years ago Arm and Nvidia were valued similarly. Nvidia is now worth more than $300 billion, having benefitted from both growing its market share and the broader bull market for large American technology stocks.

Financial markets clearly approve of the move, with Nvidia’s share price soaring by over 8% as soon as Wall Street opened this afternoon. Arm’s revenues grew by 3.4% over the financial year ended on March 31^st but it booked a $400,000 loss as a result of major investment in internet-of-things development.