FTC Sues to Block Nvidia – ARM Takeover

The question of whether or not Nvidia will be allowed to buy ARM got more complicated this week. The Federal Trade Commission has filed suit against Nvidia, alleging that the company’s plan to purchase ARM will harm the competitive market for microprocessors.

The FTC complaint argues that allowing Nvidia to purchase ARM would give the company both “means and incentive” to stifle the development of various technologies.

“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. 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.”

One interesting facet of the FTC complaint is that it does not mention any concerns about the mobile market. Instead, the complaint raises some specific areas of concern:

High-Level Driver Assistance Systems, sometimes referred to as ADAS (Advanced Driver Assistance Systems), DPU SmartNICs, and ARM-based CPUs intended for cloud computing instances. The FTC complaint also notes that Nvidia’s competitors will be forced to share intimate details of their platforms and low-level functionality. Combined, the FTC believes these issues would give Nvidia an unfair market advantage.

Like AMD and Intel, Softbank’s recent financial statements suggest ARM has benefited from pandemic purchase trends. After posting net losses for the unit in FY 2019 and 2020, ARM’s revenue has surged over the first six months of 2021. Royalty-related sales revenue is up 61 percent compared to the same period in 2020 and segment revenue has turned positive. ARM’s total yearly revenue is still dwarfed by both Intel and AMD, however, which may explain part of why an Nvidia merger would be attractive from ARM’s perspective.

The markets the FTC is concerned about are the markets where Nvidia stands to earn the most money. We talk about ARM supplanting x86 in the PC industry, but even if that happened, it wouldn’t represent an overwhelming revenue stream. PC SoCs might be worth more than mobile chips in absolute terms, but the PC market is also much smaller than the smartphone space. Datacenters and smart vehicles, on the other hand, are expected to be two of the most profitable markets of the next decade.

There’s at least two arguable reasons why Nvidia would be foolish to put its own customers at any kind of disadvantage: Intel Foundry and RISC-V. We don’t know the details of what kinds of x86 CPU cores Intel will license, and the company may face an uphill battle when it comes to winning x86 licensees — but any customer-hostile action from Nvidia would make x86 look like that much better of an alternative.

Second, there’s RISC-V. RISC-V is the open-source ISA that’s won a lot of attention in the last few years. A number of companies have built RISC-V cores thus far, but the chips that have shipped to-date have all been low-power designs suited for embedded microcontrollers and similarly low-end hardware. Recent CPU announcements from companies like SiFive are explicitly aimed at shaking up this status quo, however, and that company is expected to bring a chip to market that’s much more competitive with existing ARM hardware by late 2022 or early 2023. Matching the performance of a CPU like the Cortex-A77 by 2023 would put SiFive about four years behind ARM in terms of absolute performance. That won’t be cutting edge at debut, but it’s not exactly nothing, either.

Switching from ARM to RISC-V wouldn’t be a seamless transition for a company, however, and there’s an inevitable amount of software porting that companies would have to do. We expect that Nvidia will point to a number of factors to justify its acquisition of ARM, including renewed x86 competition from AMD, a strong RISC-V ecosystem, and Intel’s plans to license x86 cores as evidence for why Nvidia’s purchase will not lead to market abuse.

Nvidia has previously pledged to safeguard customer IP, keep ARM headquartered in the UK, and invest in ARM’s R&D department, including a new AI research facility in Cambridge. The FTC’s lawsuit follows recent news that the deal faces additional scrutiny in the EU and from the UK.

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