US government sued against purchase of chip designer Arm by NVIDIA – NVIDIA shares in the red in the pre-trading session

The US government wants to prevent a billion-dollar deal for the chip designer arm, whose technology is in practically all smartphones.

The planned takeover of the British company by the graphics card specialist NVIDIA could slow down innovations, the FTC justified its lawsuit on Thursday. NVIDIA began purchasing Arm back in September 2020, which cost around $ 40 billion at the time. It is about the largest takeover in the semiconductor industry, the value of which would now be about twice as high with the rise in NVIDIA shares.

The basic architecture of the chips, which are used in almost all smartphones and most tablet computers, comes from Arm. Based on the arm designs, Apple and Samsung, among others, develop the processors for their smartphones. The chip company Qualcomm, whose chips are in many Android phones, also uses it.

The arm architectures prevailed in smartphones against chip systems from the semiconductor giant Intel – among other things, because they work significantly more energy-efficiently. Chips based on arm designs are now also being used in data centers – and Apple is using them in its new Mac computers.

Arm is currently owned by the Japanese technology group Softbank, which did not shake the independence of the British company. However, given the planned takeover by NVIDIA, there was already turmoil in the technology industry. Some Arm customers feared that the American graphics card specialist might be interested in better interlinking future Arm architectures with its own products – which would worsen their competitive position. NVIDIA rejected such fears.

The FTC’s concerns are now moving in the same direction. The deal could allow NVIDIA to unfairly disadvantage competitors, the agency argued. She sees the danger, among other things, with assistance systems in cars and processors for cloud services. The purchase of Arm will also give NVIDIA access to confidential information from some of its competitors who are also customers of the chip designer. The FTC warned of higher prices and worse products for consumers.

According to an industry analyst, the resistance of the FTC is torpedoing the deal. “I think it is highly unlikely that it still goes on,” said Alan Priestley of the market research firm Gartner, the US broadcaster CNBC. He reckons that if the sale fails, Softbank could try to float Arm as an independent company. With Arm’s business model, which is based on the sale of licenses for the chip architectures, it is difficult to squeeze out high profits.

NVIDIA announced in mid-November that it was in talks with the FTC about how the agency’s concerns about the deal could be dispelled. NVIDIA announced in an initial response to the lawsuit that it wanted to show that the acquisition would increase competition and benefit the industry.

The new FTC boss Lina Khan is generally expected to take a tougher pace with a view to the market power of technology companies. Amazon and Facebook have already called for them to stay out of investigations into their companies because they are biased as a critic. In Europe, the British competition watchdog and the EU Commission have so far initiated in-depth reviews of the deal.

NVIDIA shares closed 2.20 percent higher at $ 321.26 on the NASDAQ on Thursday. In the pre-trading session on Friday, the stocks temporarily fell 0.73 percent to $ 318.90.


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