Nvidia Corporation’s (NASDAQ: NVDA) acquisition of British semiconductor company Arm Ltd. is already facing scrutiny in the latter’s home country, and the troubles could be even worse in China, CNBC reports.
What Happened: While Nvidia is based in the U.S., and Arm in the United Kingdom, both companies have operations worldwide, including in the European Union and China.
Nvidia agreed to a billion purchase agreement for Arm with its parent company — Softbank Group Corp (OTC: SFTBY) — but said the deal would need the approval of authorities in the U.S., the U.K., the E.U., and China.
According to Sebastian Hou, the Managing Director and Head of Technology Research at CLSA, the “biggest challenge” for Nvidia and SoftBank would be potential sanction from Chinese regulators, CNBC reported.
China would want to avoid the “nightmare” of an American company owning Arm, as that would open a window for the U.S. government to restrict its access to the crucial technology, Hou told CNBC.
“Given the U.S.-China tensions and US suppression on a range of Chinese technology enterprises, if Arm falls into U.S. hands, Chinese technology companies would certainly be placed at a big disadvantage in the market,” Chinese state-owned newspaper Global Times wrote.
Why It Matters: In April 2018, Arm entered into a joint venture with a consortium of Chinese companies which included the state-backed China Investment Corporation and the Silk Road fund, according to South China Morning Post. A majority stake is collectively held by the Chinese entities, whereas Arm holds 49% in the joint venture.
The British chip designer’s business model relies on licensing its technology to other technology companies. Reportedly, over 180 billion chips using Arm’s technology have been shipped worldwide and almost all the smartphones use this technology. A change in ownership of Arm Holdings could have an overall impact on the semiconductor industry, especially due to the tensions between the two leading economies in the world.
Arm co-founder Hermann Hauser last week termed the company’s acquisition as a “disaster” for Europe.
Price Movement: After a 1.85% gain during trading hours, Nvidia stock gained an additional 1.03% in the extended trading hours to close at $499.