By Sam Nussey and Stephen Nellis
TOKYO/SAN FRANCISCO (Reuters) - Nvidia (NASDAQ:NVDA) Corp will buy UK-based chip designer Arm from Japan's SoftBank Group Corp for as much as $40 billion, the companies said on Monday, in a deal set to reshape the global semiconductor landscape.
The sale puts a vital supplier to Apple Inc (NASDAQ:AAPL) and others across the industry under the control of a single player and faces likely pushback from regulators and rivals to Nvidia, the biggest U.S. chip company by market capitalisation.
Within hours of the announcement, critics questioned how Arm would maintain its open approach under U.S. ownership and at a time of friction with China.
For Softbank (OTC:SFTBY), the sale marks an early exit from Arm, just four years after the technology group's $32 billion acquisition. Chief Executive Masayoshi Son has lionised the potential of Arm but is slashing his stakes in major assets to raise cash.
The move comes as SoftBank executives, frustrated at the group's share performance, have held early stage talks about taking the Japanese technology group private, a source told Reuters. Those talks could gain momentum following the Arm sale. SoftBank's shares soared 10% in Tokyo.
Nvidia will pay SoftBank $21.5 billion in shares and $12 billion in cash, including $2 billion on signing. The deal will see SoftBank and its $100 billion Vision Fund, which has a 25% stake in Arm, take a stake in Nvidia of between 6.7% and 8.1%.
Nvidia CEO Jensen Huang said the deal, which will boost his firm in data centre chips, was "pro competition". It marked "the first time in history the industry could see something that is genuinely alternative" to Intel Corp (NASDAQ:INTC)'s domination of the sector, he said.
Taiwan-born Huang emphasised he will retain Arm's neutral licensing model and expand it by licensing out Nvidia intellectual property for the first time.
Nvidia said it will license its flagship graphical processor unit through Arm's network of silicon partners. It will build chips for devices like self-driving cars but also make its technology available for others.
The companies did not discuss the deal with the British government until shortly before the announcement because the talks were secret, Huang said. A new artificial intelligence research center will be built at Arm's Cambridge headquarters.
"Cambridge is going to be a site of growth," Huang said.
CHINA SCRUTINY
Arm does not make chips but has created an instruction set architecture - the most fundamental intellectual property that underpins computing chips - on which it bases designs for computing cores.
Arm licenses its chip designs and technology to customers like Qualcomm (NASDAQ:QCOM) Inc, Apple and Samsung Electronics (OTC:SSNLF) Co Ltd. Apple's forthcoming Mac computers will use Arm-based chips.
Arm will not become subject to U.S. export controls under the deal, said Huang.
The purchase, which is subject to regulatory approvals including in Britain, the United States and China, is likely to come under close scrutiny in China, where thousands of companies from Huawei to small startups use Arm technology.
Nvidia will take control of the minority stake in joint venture Arm China. Arm is in dispute with the venture, which licenses chip architecture to local companies, over its management.
Co-founded by Huang, who has a penchant for leather jackets and an Nvidia arm tattoo, the firm began as a graphics chip designer but has expanded aggressively into products for areas including artificial intelligence and data centers.
The Arm acquisition will put Nvidia into even more intense competition with rivals in the data center chip market such as Intel and Advanced Micro Devices (NASDAQ:AMD) Inc because Arm has been developing technology to compete with their chips.
In what would amount to a direct challenge to those rivals, Huang said it is "possible" Nvidia will build its own server chips based on Arm designs.
Nvidia is buying up technologies in parts of the booming data center business where it does not currently play.
In April it completed the purchase of Israel-based Mellanox (NASDAQ:MLNX) Inc, which makes high-speed networking technology that is used in data centers and supercomputers.
The Arm deal is expected to close by March 2022.
SoftBank could be paid an additional $5 billion in cash or shares depending on the chip designer's business performance, with Arm employees to be paid $1.5 billion in Nvidia shares.