How Nvidia’s purchase of Arm could open new markets

WHEN SOFTBANK, a Japanese technology group, paid $32bn for Arm in 2016, it was the biggest deal in chipmaking history. That record held until September 13th, when Nvidia, a big American chipmaker, announced its intention to buy the Britain-based chip-designer for $40bn.

Although they share an industry, Arm and its prospective owner are very different. Nvidia makes GPUs: pricey, specialised accelerator chips for gamers and artificial-intelligence number-crunching in data centres. Arm licenses blueprints for general-purpose chips used in everything from smartphones to cars and computerised gizmos that make up the “Internet of Things” (IoT). Customers ship more than 20bn Arm-designed chips every year.

Arm’s keystone position was SoftBank’s rationale for buying the firm. But it has languished under Japanese ownership. Revenues have stagnated, and the firm has made a small but persistent loss (see chart). Geoff Blaber at CCS Insight, a firm of analysts, blames a slowdown in the smartphone market, and low margins on IoT gear. Arm’s $40bn valuation is only 25% higher than when SoftBank bought it—and just 5% higher if you deduct the $1.5bn Nvidia has offered Arm employees to stop them from leaving and a mysterious $5bn cash or stock payout that SoftBank may qualify for under some conditions. Meanwhile, Nvidia’s market capitalisation,...



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