Chip maker Nvidia takes a $40B chance on Arm Holdings

Nvidia's deal to buy Arm would launch the processor maker as a world-class power with reach into servers and cell phones - if regulators allow it.

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After months of teasing and rumor, GPU and AI vendor Nvidia announced it would purchase Arm Holdings from its parent company SoftBank for $40 billion. The purchase includes $21.5 billion in Nvidia stock and $12 billion in cash, including $2 billion payable at signing. That will break the piggy bank because Nvidia had $10.9 billion in cash on hand as of the most recent quarter.

Softbank acquired Arm in 2016 for $31.4 billion in 2016. At the time, SoftBank CEO Masayoshi Son said it was an investment in the Internet of Things. But SoftBank, known for its profligate spending on acquisitions and investments, made some bad investments in WeWork and Uber, among others, and was saddled with $25 billion in debt.

So earlier this year it announced plans to sell Arm to help pay off that debt. Nvidia’s name was the first and only name to come up because few had the wherewithal to make such a hefty purchase. Softbank is also looking to sell its $20 billion stake in T-Mobile.

There is little overlap between the two. Arm has a GPU, called Mali, used by some smartphone makers but it is not competitive with Nvidia’s GPU. The two companies operate very differently, though. Nvidia designs chips while Arm makes architectures for use in a variety of devices. Licensees then take the Arm design and add their own unique IP for competitive advantage.

In announcing the deal, Nvidia said Arm will “continue to operate its open-licensing model while maintaining the global customer neutrality that has been foundational to its success.” Arm can be found in pretty much every smartphone in the world, and Apple is shifting its Mac products to a home-grown Arm processor.

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