Nvidia-Arm Deal Risks Higher Prices, Less Choice, EU Warns

(Bloomberg) -- Nvidia Corp.’s bid for U.K.-based chip developer Arm Ltd. risks “higher prices, less choice and reduced innovation,” the European Commission warned as it opened a longer probe into the deal.

The EU’s analysis shows that the acquisition “could lead to restricted or degraded access” to Arm’s intellectual property, EU Competition Commissioner Margrethe Vestager said in a statement on Wednesday. 

That could affect “many markets where semiconductors are used,” Vestager added. The EU set a new deadline of March 15 to rule on the transaction.

Rivals and chip customers have criticized the deal, valued at $40 billion when it was announced more than a year ago. Qualcomm Inc. and Alphabet Inc.’s Google have voiced complaints that Nvidia’s control of Arm’s licenses for essential chip technology could threaten the Cambridge, England-based chip designer’s role as a neutral partner often compared to the Switzerland of the semiconductor industry. 

Other customers, including Broadcom Inc., MediaTek Inc. and Marvell Technology Group Ltd., have been supportive of the transaction.

Nvidia said it would work with EU regulators “to address their initial concerns and continue demonstrating that the transaction will help to accelerate Arm and boost competition and innovation, including in the EU.” 

Squeeze Out Rivals

The EU said its initial probe showed Nvidia had the economic incentive to squeeze out rivals that could harm process products such as:

The investigation will also check if Arm licenses might be reluctant to continue sharing information with the merged company because they compete with Nvidia. The EU’s concern is that this could harm innovation in the industry. 

It will also check if Arm would refocus research spending on products that make more money for Nvidia, harming companies that rely on Arm’s intellectual property elsewhere.

Lengthy regulatory reviews look set to see the company miss its initial target to close the deal in March 2022, which can be further extended until September. 

The U.K.’s Competition and Markets Authority separately recommended an in-depth investigation in August. It rejected as insufficient Nvidia’s offer to maintain Arm’s open licensing, nor did it see a partial sale of Arm intellectual property as allaying its initial concerns.

The U.K. is still weighing a separate investigation into potential risks to national security. The tie-up also needs approval from the U.S. and China.

Nvidia has countered that it will maintain open licensing and that the deal will help Arm, its licensees and the industry.

Arm owns the most widely used set of standards and designs in the $400 billion chip industry. Its technology is at the heart of most of the world’s smartphones and is finding an increasing role in computing, including in server machinery that runs corporate and government systems.

Arm has acted as a neutral party that sells chip blueprints and licenses its standards to a wide range of major technology companies, many of whom are fierce competitors. Ownership by Japan’s SoftBank Group Corp., which acquired it in 2016 and which doesn’t overlap with Arm’s customers, has preserved that neutrality.