UPDATED 13:32 EDT / AUGUST 20 2021

POLICY

UK antitrust regulator calls for in-depth investigation of Nvidia’s Arm acquisition

The U.K.’s top antitrust regulator, the Competition and Markets Authority, today recommended the launch of an in-depth “Phase 2” investigation into Nvidia Corp.’s proposed acquisition of Arm Ltd.

The CMA began reviewing the proposed deal in January. Today’s recommendation to launch a Phase 2 investigation represents the result of the regulator’s initial review. The recommendation was attached to a report that the CMA has submitted about the deal to U.K. Digital Secretary Oliver Dowden, who will decide how to proceed with the probe.

U.K.-based Arm makes chip blueprints that form the basis of the processors in most Android phones, billions of “internet of things” systems and many other devices. Last September, Nvidia announced an agreement to buy Arm in a cash and stock deal worth $40 billion. Thanks to the fact that Nvidia’s share price has risen significantly since then, the deal is now valued at more than $54 billion.

The CMA is looking to scrutinize the proposed transaction more closely because it believes Nvidia’s acquisition of Arm could harm competition in the chip market. Specifically, the regulator is concerned that Nvidia may have an incentive to restrict competitors’ access to Arm chip blueprints.

To address regulatory concerns, Arm earlier this year indicated it would take steps to prevent potentially anticompetitive behavior following the deal. The company said that it will “keep the firewalls up between the two companies relative to confidentiality” and committed not to give Nvidia earlier access than competitors to new technology. Nvidia, in turn, earlier stated that Arm will continue to operate its current open licensing model.

The CMA’s report today highlighted the central processing unit market as one of the areas where officials are concerned about potential antitrust risks. The CMA found “significant competition concerns associated with the merged business’ ability and incentive to harm the competitiveness of NVIDIA’s rivals (that is, to ‘foreclose’) by restricting access to Arm’s CPU IP and impairing interoperability between related products.”

In particular, the CMA is worried about the deal’s potential implications for the data center CPU ecosystem. Nvidia recently debuted a server processor based on Arm designs. Several other companies offer competing server processors that also use Nvidia’s chip designs.

Beyond the data center, Arm’s CPU designs are widely used in systems-on-chip, or SOCs, multipurpose chips that combine several processors in a single package. Arm-based CPUs can be found in the SOCs of IoT devices, advanced driver assistance systems, vehicle infotainment systems and video game consoles. The CMA believes that the growth these markets are experiencing “gives NVIDIA a strong incentive to gain a first-mover advantage through a foreclosure strategy” targeting rivals.

Furthermore, officials see additional antitrust risks potentially stemming from Nvidia’s network-interface controller business. A network-interface controller, or NIC, is a type of specialized chip that plays an important part in managing the flow of information inside data centers. Nvidia’s Mellanox unit is a major NIC supplier, while Arm provides chip designs that are used in nearly all NIC products on the market.

Nvidia’s core graphics processing unit business also factored into the CMA recommendation to launch a Phase 2 probe. The chipmaker is the leading maker of GPUs for both personal computers and data centers. In the data center, Nvidia’s GPUs are deployed together with NIC chips. CMA officials are concerned that buying Arm may allow Nvidia to “modify the interoperability between Datacentre GPUs and Arm-based Datacentre CPUs and or SmartNICs, to enhance NVIDIA’s products and undermine the operability of rivals’ products.”

According to the CMA, Nvidia has offered a set of “behavioural remedies” to ensure competitors would continue to have access to Arm technology. However, the CMA found “such a behavioural remedy would carry material specification, circumvention, and monitoring and enforcement risks.”

In a statement responding to the CMA’s recommendation of an in-depth investigation, Nvidia said that “we look forward to the opportunity to address the CMA’s initial views and resolve any concerns the government may have. We remain confident that this transaction will be beneficial to Arm, its licensees, competition, and the U.K.”

Several major chipmakers that use Arm designs, including Broadcom Inc., recently expressed support for Nvidia’s proposed acquisition. Publicly traded Broadcom is the top maker of chips for data center network switches and has a presence in other markets as well. 

Image: Nvidia

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