Hey.

Rumors that Nvidia is in talks with Softbank to buy their share of ARM have turned into reality, which means that the electronics market may irreversibly change. To understand this deal and the pitfalls, you need to look at what ARM is for the current market today. I am sure that you have a smartphone, which means that you are using ARM products, in particular, the processor of your device is built on their cores. Even if you have an iPhone with a Bionic processor, it’s ARM. If you have a Qualcomm processor, it is still an ARM processor. ARM architecture dominates the smartphone market; their chips are also used in smartwatches, tablets, and appear in laptops. One of the first projects for computers was Windows for ARM, this year Apple plans to show its MacBooks running on ARM-processors. It is difficult to overestimate the penetration of ARM technologies on the market; the opposite situation is more likely here. In 2019, 22.8 billion chips were shipped worldwide, each of which used the ARM architecture.

Despite ARM’s dominant position in the market, the company remained independent of any other electronics manufacturer. In 2016, the investment group Softbank acquired the company for $ 32 billion, but the strategy has not changed in any way, all licensees continued to receive access to ARM technologies on a transparent, non-discriminatory basis.

As part of America’s trade war against China, US politicians have imposed numerous sanctions that barred the supply of US technology to Huawei and a number of other companies. It was supposed to be a fatal blow to Huawei, but it never happened. Along the way, it turned out that ARM does not fall under American laws, remains an independent player in every sense. And at the same time it controls the future of the electronics market, although it does not experience any political ambitions, it remains equidistant from any squabbles. A possible purchase of ARM by Nvidia will turn the company into a player that restricts access to technology, as it must follow the sanctions of the US government.

The deal itself should be completed in 18 months, the companies have officially announced its parameters. Softbank sells ARM for $ 40 billion, of which $ 21.5 billion is paid in Nvidia shares, $ 12 billion in cash (2 billion of them at the time of signing the contract), and part of the payment is attributed to ARM indicators. The deal has not been discussed with any of the regulators, neither in Britain, where ARM is headquartered, nor in other countries. Approval of the deal must be obtained from competition authorities in the United States, Britain, the European Union and China. And this is where the biggest question arises, since Nvidia’s management declares that ARM will remain independent and will not come under any restrictions from the United States, in particular, will not become an object of US export control. In my opinion, this is an attempt to get around the sharp corners of this deal, when the Nvidia CEO says what he wants, but not at all about the real.

The political situation in the United States today is such that any options of pressure on China are used, sanctions are imposed on dozens of companies, and control over their observance is extremely careful. As part of this life-and-death struggle, it is difficult to imagine that ARM, which has become controlled by an American company, will remain on the sidelines. Nvidia’s desire is easy to explain and understandable, but against the backdrop of big politics, these desires will not bother anyone. Provided that ARM is purchased, it is only a matter of time before sanctions are imposed on Huawei and a number of other Chinese companies so that they do not have access to “American” technologies. This will inevitably happen, since the United States simply does not succeed in breaking Huawei as quickly as it was originally planned. Read about what Huawei is doing to resist the onslaught, they are quite interesting and extraordinary.

ARM’s independence was a fundamental advantage of the company, all licensees received the same conditions and could compete on equal terms. Inside Nvidia, the use of ARM will allow a breakthrough in autonomous cars, processors for data centers, and the design of computer systems of the future. And all this is again under the control of an American company. The assurances that the open licensing model will not change and that the headquarters will remain in Britain does not change the fact that these are only desires, but not reality at all. Changing ownership will give ARM leverage, no doubt about it.

But the problem here is much broader. It will be impossible to get rid of the thought that ARM provides better conditions for the parent company, provides quick access to developments, in a word, creates preferences. Even if this is not the case, it is almost impossible to prove otherwise. This thought will dominate the market, it will not be possible to remove this point from future discussions.

For Chinese companies that have embarked on a course of independence from American technology, as this is the key to future survival and success in the market, this deal looks like unpleasant news. There is a subsidiary ARM China in China, it sells the ARM architecture for local players, moreover, it is a joint venture. There is no development in ARM China, this is the office selling access to the parent company’s patents. Nvidia will not gain control over this company, the share will be insignificant. But the company itself does not mean anything, it is an empty shell. Instead, you can open any other company that can sell licenses for ARM with some success.

Nvidia claims that it can, using the ARM licensing system, give access to their developments in the field of graphics, in theory, this will allow individual manufacturers to create solutions that compete with Nvidia on their architecture. It sounds promising, but the devil is in the details, you will need to carefully study how and what will be licensed. There are still more questions here, but the dropped phrase looks like plans from the distant future, and not what is happening here and now.

For Nvidia, the mobile market turned out to be a tough nut to crack, the company tried to gain a foothold in it, in 2008 Tegra chips for mobile devices appeared. A serious attack on the mobile device market happened in 2010, when Tegra 2 was shown at CES, several smartphones with it were released. But the perception in the market was far from ideal, and the manufacturers themselves were faced with the fact that sales of rather expensive and productive smartphones were far from predicted. Gradually Tegra became history, although in fact this direction survived in automotive systems, but it did not take root inside smartphones.

An article written ten years ago about the Tegra platform looks funny in the future, much of what Nvidia dreamed of never happened. And so buying ARM looks like a second approach to the projectile. This does not mean that immediately after the deal, Nvidia will start producing smartphones, this path is just unlikely. On the rise of data center and cloud systems, there is GeForce Now, which is the most advanced gaming service in the cloud and has virtually no direct competition. Where to apply ARM developments, there are niches in the market, in addition to smartphones, a cart and a small cart. But will other players want to use ARM?

In fact, we can say that other manufacturers will have nowhere to go, they simply have no way out, and ARM is vital. And a few years ago, one could agree with such a statement and not even argue with it. But today, the US trade war against China has forced the latter to create all the microelectronics industries domestically, including processor architecture. Can ARM be recreated from scratch? I sincerely doubt that it will turn out well, as it is a huge investment of time and money. But if you start to create an ARM architecture with a number of changes and will those people who worked at ARM work on it? Everything becomes possible here.

China has become a bounty hunter over the past few years. It is important to understand here that Chinese companies are recruiting key employees from a huge number of American, European and Asian companies. And for the knowledge holders, the level of salaries becomes such that they are happy to change the flag. Money solves this issue effectively, and already inside China new technological stories are being built, which are based on old developments, but with their own approach. We can say that the world of electronics is beginning to rapidly divide into the technologies available to American companies and the approach of Chinese manufacturers.

I have no doubts that Chinese technologies are at least five to six years ahead of them, they will take a few steps back from the current level. But this is the beginning of a large industry for the development of microelectronics, and not just its production. And here China has a huge advantage, they know how to work and consistently build up their skills. Before our eyes, a new space race for the future of electronics is unfolding. And there won’t be one winner in it, it’s just that America will lose its status as an uncontested technology supplier, which, in my opinion, is not bad at all. We will have an alternative, there will be competition at the level of hardware, operating systems, applications. Until recently, no one wanted to create a competitor to ARM, there was no such political task, since only states are capable of creating companies of this scale. Now this task has appeared, since the actions of the United States are forcing China and not only to think about its own security, access to modern technologies, and preferably its own. Who will win this race? Who will you bet on?

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