Arm promises again: Will be neutral in working with customers

Because it is being acquired by Nvidia, many people have expressed concern about Arm’s future neutrality. Several companies, including Qualcomm, Graphcore, Microsoft and Google, have spoken out against Nvidia’s acquisition of Arm. Multi-national censors have also launched investigations into the deal.

However, from the date of its acquisition, Nvidia has repeatedly emphasized the neutrality of ensuring Arm’s future.

A few days ago, foreign media also reported that Arm is signing longer contracts with its customers, and promised not to let new buyers bring them any threat (Arm is signing longer contracts with its customers and committing not to give its new owner). special treatment as the British microchip company attempts to smooth over concerns about its $40bn (?29bn) sale to US giant Nvidia.)

  Is Nvidia’s acquisition of Arm a good deal?

NVIDIA is best known for its graphics processing unit (GPU) and computing and networking solutions.

The company’s history is related to its strong presence in the graphics solutions market. The recent surge in demand for computing power for advanced graphics applications (primarily related to the gaming market) has been a huge boost for NVIDIA.

Nvidia’s other division, Computing and Networking, has a clear goal: to help NVIDIA become the market-leading AI (artificial intelligence) solutions company. AI can be widely used in various applications such as service robotics, autonomous driving mobility, and IoT (Internet of Things) applications.

Being an effective AI solution strongly relies on computing power. To achieve this advantage, they must be able to provide the most suitable computing platform available to run such applications. Providing AI “platforms of choice” will make them a fundamental part of the ecosystem, allowing them to reap huge rewards for decades to come.

In September last year, NVIDIA made clear its future direction by announcing its intention to acquire private chip designer Arm Holdings from Japanese technology giant SoftBank in a deal worth about $40 billion. SoftBank previously acquired ARM Holdings for a total of $31 billion.

Specifically, the company agreed to pay SoftBank $12 billion in cash and $21.5 billion in NVIDIA common stock (which will be achieved by issuing 44.3 million shares).

They will also issue $1.5 billion in equity to Arm employees. Ultimately, SoftBank could receive up to $5 billion in cash or common stock, but only if Arm sets established performance targets.

The deal looks like a win-win situation for NVIDIA shareholders, who will likely benefit from the acquisition (despite the announced 7% dilution), SoftBank will receive cash and retain a stake in the larger company, and Arm employees, They will enjoy unexpected bonuses.

From a strategic standpoint, the acquisition makes perfect sense: NVIDIA will acquire a computing ecosystem leader with a solid moat, large market share, and valuable long-term customer relationships.

Actually, I say “strategic” because it’s not just a deal where one company buys another company to enhance its presence in a particular market or acquire a new technology.

Not only that: NVIDIA may increase the use and leverage of Arm in the future for its rivals and other large tech companies (i.e. existing customers of Arm Holdings), which led to a large group of Alphabet’s Google, Microsoft, Qualcomm and other players last February. A coalition of tech companies has spoken out against the deal, with some sending letters to the Federal Trade Commission, the European Commission and other agencies and regulators, alleging that NVIDIA’s acquisition could limit other companies’ access to Arm’s technology, or raise prices.

This was never an issue, either before or after the Sofbank acquisition, as Arm has always been known for its neutrality: the company made its product available to anyone willing to pay for it, and it never favored one customer or the other , and do not participate in competition matters.

NVIDIA, on the other hand, of course guarantees that nothing will change and plans to continue using Arm’s open licensing model. Not only did they pledge to keep ARM’s UK headquarters, but they also announced their intention to expand the Cambridge campus to make it a world-class research centre focused on AI.

No one knows if regulators will give NVIDIA the green light it needs to close the deal, but it’s safe to assume the deal will be delayed now that they need more documentation and details.

But even with the deal, another thing NVIDIA has to worry about is the rise of RISC-V processors.

 RISC-V adoption is a threat to Arm’s dominance

Before we dive into the implications of adopting a RISC-V (reduced instruction set computer) processor, let’s take a look at how Arm Holdings’ licensing model works.

AMD, Intel, and NVIDIA themselves make money by selling chips, but Arm’s business model is different because it’s basically an IP (intellectual property) licensing business with a pay-as-you-go option.

This means that Arm does not sell chips, but actually sells chip designs (while customers are responsible for implementing and personalizing the chips), and collects:

Licensing fees are paid up front based on design complexity; base royalties are charged per film.

The royalty portion can be much larger than the license fee, as it increases with chip sales (usually 1-2% of the chip sales price).

Over the years, Arm Holdings customers have paid fees and royalties to keep selling their chips, forgoing some profits but benefiting from strong designs for their chips, great support and the possibility to easily customize them.

But what if, following the NVIDIA acquisition, they were unable to use Arm technology or were forced to pay higher prices, further eating into their precious profits? With profits at stake, they should at least consider the possibility of a Plan B.

Here comes RISC-V, it’s not a competitor to Arm and it’s not a product. RISC-V is an open-source microprocessor instruction set architecture (ISA) that enables chip companies to design RISC-based chips without paying any licensing fees (or royalties).

Just to illustrate the relevance of RISC-V, we can mention companies like Huawei and Google as the first backers of the project, and even the same group of NVIDIA, which was based on its next-generation Falcon before deciding to acquire Arm Logic controller on RISC-V.

Back in 2010, computer science professors Krste Asanovi and David Patterson (who, as I recall, studied one of the excellent textbooks in college), along with a group of graduate student volunteers at UC Berkeley, decided to Develop and publish an open source computing architecture. What sparked them was a lack of innovation in the available RISC-based architectures and frustration with seeing CPU vendors charge high royalties and fees for the use of their end products.

In 2015, the non-profit RISC-V Foundation was formed and released their first official ISA so that everyone could download the chip design and use it for free. As mentioned earlier, companies pay nothing to download the RISC-V architecture, no matter how many times they download it or how many devices they decide to put the design into.

Tech companies all over the world are racing to develop their first RISC-V-based chips, which will save them a lot of money and protect them from NVIDIA’s domination.

Of course, reality is not black and white. Arm’s chips are still of great value, and they’re already used in many devices, including those currently in development.

Also, not all high-tech companies (especially pure software companies) have the skills to choose a microprocessor design, implement it, and integrate it into their chip design. For those companies, Arm’s expertise remains important.

So Arm’s moat remains, but the rise of RISC-V-based chips is likely to erode the moat. Semico Research estimates that by 2025, more than 62 billion RISC-V-based devices will be shipped worldwide.

The arrival of RISC-V is also shaping the way companies behave in the ecosystem, with some companies such as Western Digital releasing the RISC-V based SweRV CoreTM to the open source community, while others such as Siemens provide RISC-V tools Chain serves other companies with less experience in the field. In computer programming, a toolchain is a set of programming tools used in development activities, such as a code compiler, to create a software product on a specific platform.

NVIDIA’s planned acquisition of Arm Holdings from SoftBank has caused a worrying wave in the technology ecosystem as it could lead to less competition and less profit for Arm customers, some of whom have spoken out against the deal.

On the other hand, whether the deal goes through or not, Arm Holdings will have to contend with the growing appeal and increased adoption of RISC-V-based designs in its customers’ end products. Arm Holdings has responded by reducing licensing fees to fend off RISC-V competition.

I think its currently solid moat is likely to be eroded over the next few years due to RISC-V adoption (whether due to replacement or price pressure), resulting in lower margins and market share.

Related Posts