⚙️ Is Qualcomm Set For An ARM Wrestle With NVIDIA?
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⚙️ Qualcomm: Ready For The ARM Wrestle?
After objecting to NVIDIA's (NVDA) $40B acquisition of ARM Holdings, Qualcomm (QCOM) has told regulators that it will be willing to invest in the company if the deal falls apart. However, conditions apply for Qualcomm to be part of the consortium. (Tweet This)
To ARM Or Not To ARM
In 1979, Acorn Computers started operations in Cambridge, UK to develop the system for running slot machines in casinos. More than a decade later, Acorn had developed a Reduced Instruction Set Computing (RISC)-based CPU known as the Acorn RISC Machine or ARM.
As the smartphone revolution enveloped the world, ARM's energy-efficient chip architectures have unknowingly become an inseparable part of our lives. 95% of the chips designed in China and 95% of the world’s smartphones use ARM architecture. Over 500 companies around the world license this technology to design their own chips.
In 2016, Softbank acquired ARM for $32B - at the time, the largest acquisition of a European firm. Softbank put ARM up for sale last year and NVIDIA, the graphics processor manufacturer, signed the deal to acquire ARM for $40B for a combination of cash and equity. The deal was considered a coup for NVIDIA with it being earnings accretive immediately.
However, this deal raised the hackles of the Chinese regulator since ARM technology is the driver of the Chinese smartphone and app revolution. With NVIDIA being US-headquartered, the Chinese were circumspect that any potential Huawei-style sanctions from the US on ARM would cripple Chinese reliance on this technology in unforeseen ways.
Chips In The Regulators’ Court
Enter Qualcomm. The company has been vociferously against NVIDIA acquiring ARM citing antitrust concerns. Qualcomm is worried about being shut out of using ARM’s technology for good, if NVIDIA decides to strangle competition with its new-found control of ARM. Additionally, Google (GOOGL) and Microsoft have raised similar objections to this deal.
Qualcomm's CDMA business vertical, which contributes of 70% of the company's overall revenue is the one that is likely to be impacted due to the NVIDIA-ARM deal.
The deal is currently being evaluated by the FTC, the European Commission, UK's Competition and Markets Authority, and China's State Administration for Market Regulations. FTC's investigation has moved to a 'second phase' and the US regulator has asked SoftBank, Nvidia, and ARM to provide more information.
The Chinese are expected to delay taking a decision on this deal for at least 18 months. The EU and UK will take their own time. However, NVIDIA has been upbeat and has expressed confidence the deal will be completed by early 2022.
Qualcomm isn’t willing to tow this line and has gone on to say that it will be ready to invest in ARM along with a consortium of other investors. However, this comes with a precondition that ARM should become a publicly traded company so that it’s not under the control of any single entity.
Qualcomm's offer has only served to complicate the deal NVIDIA had assumed was done and dusted. With the trust deficit widening between the US and the Chinese government on the issue of the origins of the virus that has caused the pandemic, NVIDIA’s optimism may be misplaced. In which case, it’s an advantage for Qualcomm for the time being.
QCOM ended the day at $134.62, up 0.30%.
Company Snapshot 📈
QCOM $134.62 +0.40 (0.30%)
Analyst Ratings (28 Analysts) BUY 64% HOLD 32% SELL 04%
Later Today 🕒
Azure Power Global Ltd. Earnings (AZRE)
Argan Inc. Earnings (AGX)
General Motors Annual General Meeting (GM)
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