Sep 23, 2020 06:51 PM

In Depth: China Plays Kingmaker in Nvidia’s $40 Billion Bid for Arm

Could China play the spoiler again for another blockbuster semiconductor merger, even though both parties to the deal aren’t Chinese?

Analysts and observers say that Beijing could potentially step in for an encore with its potential to veto the mega-merger announced last week that would see Nvidia Corp. buy Arm Holdings Ltd. of Britain for $40 billion from Japan’s SoftBank. Such a veto would come just two years after U.S. telecom chip giant Qualcomm scrapped its plan to buy Dutch peer NXP Semiconductors for $44 billion after failing to get Beijing’s approval.


As with the earlier case, a confluence of anti-competitive concerns by Arm’s many Chinese customers, potentially combined with geopolitical considerations stemming from recent tech tensions between Beijing and Washington, could ultimately move Beijing to veto the deal, some observers said.

Nvidia has said it expects the deal will take around 18 months to complete, with approval required by the U.K., European Union and U.S. in addition to China, the last of which currently accounts for about a quarter of Nvidia’s sales.

Many of the industry sources polled by Caixin said many China-based customers that rely on Arm’s technology are likely to balk at having the company come under control of an American peer. At the heart of their concerns is the different nature of Arm’s current relationship with owner Softbank and a potential future life under Nvidia.

Whereas SoftBank is largely a high-tech investor that lets Arm operate independently, Nvidia is a peer that would treat Arm more as a strategic purchase to complement its own products. Accordingly, most people interviewed by Caixin agreed that Arm would lose some of its autonomy if the deal is approved, becoming more like a traditional subsidiary of a larger company.

“If it’s acquired by an American company, it will lose its ‘voice,’ and many fear the level of its intellectual property will be set back by several years, the consequences of which can only be imagined,” said one person from the tech sector, reflecting the views of many others.

Nvidia founder and CEO Jensen Huang, also known as Huang Jen-Hsun, told Caixin that Arm’s headquarters is in the U.K. and that most of its intellectual property (IP) also comes from Britain. Its ownership by another company, be it American or Japanese, shouldn’t affect any restrictions it faces on the export of its technology. He said he believes Chinese regulators will like the deal because it will allow Nvidia to provide a wider range of products that will ultimately benefit the Chinese market.

Nvidia would be seeking Beijing’s nod not long after completing another difficult purchase of networking chipmaker Mellanox Technologies in April. That $6.9 billion deal took over a year to complete due to Beijing’s extended review before finally signing off.

The Arm deal is much larger, but has some similarities because all three names are clear leaders in their spaces. In markets like China, names like Alibaba worried that the Mellanox merger would give Nvidia a dominant position in chips used in data centers that are a central part of cloud computing, people familiar with that merger told Caixin. But Nvidia was ultimately able to get China’s nod after convincing several key Chinese companies to drop their opposition, one person said.

While market factors should be China’s biggest consideration, some believe that geopolitics could also play into the equation. In particular, China may decide to flex its regulatory muscle to show its displeasure at recent U.S. actions to limit the global aspirations of Chinese tech giants like telecom equipment giant Huawei and internet media company ByteDance.

Such geopolitical considerations may have been at play when China killed the Qualcomm-NXP Semiconductors bid, at which time rhetoric was already beginning to heat up in Washington against Huawei. In this latest instance, China could use its power to veto the deal to answer recent American aggressions against Huawei, said Prakash Sangam an industry analyst who previously worked at Qualcomm for a decade.

But at least one optimist said that Nvidia’s roots as a company founded by a Taiwanese person in the United States, and also a company not seen as a premier American tech name, could also lessen Beijing’s opposition amid its ongoing clashes over technology with Washington. Even though its stock has exploded in recent years — taking its current market value to more than $300 billion — Nvidia still isn’t seen as a big U.S. tech name like Apple and Intel, he added.

Most insiders polled by Caixin said China’s attitude toward the merger would be the most critical potential obstacle it could face. But they added that if all other countries approve the deal, China might also be persuaded to follow suit.

Contact reporter Yang Ge ( and editor Joshua Dummer (

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