FTC sues to block NVIDIA's acquisition of Arm

The US Federal Trade Commission (FTC) has sued to block chip supplier NVIDIA’s $40 billion acquisition of UK chip design provider Arm, claiming the deal would stifle competing next-generation technologies.

Originally announced in 2020, the proposed deal would give California-based NVIDIA — one of the largest chip companies in the world — control over the computing technology and designs that rival firms rely on to develop their own competing chips. The FTC’s complaint alleges that the combined firm would have the means and incentive to stifle innovative next-generation technologies, including those used to run data centres and driver-assistance systems in cars.

“The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies,” said FTC Bureau of Competition Director Holly Vedova.

“Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets. This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine NVIDIA’s rivals. The FTC’s lawsuit should send a strong signal that we will act aggressively to protect our critical infrastructure markets from illegal vertical mergers that have far-reaching and damaging effects on future innovations.”

Arm, which is owned by Tokyo-based Softbank Group, does not supply or market finished computer chips or devices; rather, it creates and licenses microprocessor designs and architectures, known as Arm Processor Technology, to other technology companies, including NVIDIA. These companies in turn rely on Arm Processor Technology to make computer chips that power a wide range of modern computing devices, from smartphones to tablets to driver-assistance systems to computers in large data centres. Arm also provides important related support and services. Arm licenses its processor technology using a neutral, open licensing approach and is often dubbed the ‘Switzerland’ of the semiconductor industry, according to the FTC complaint.

NVIDIA is meanwhile one of the world’s largest and most valuable computing companies, developing and marketing computer chips and devices and a dominant supplier of standalone graphics processing units (GPUs) for personal computers and data centres which are used widely for artificial intelligence processing and graphics processing. NVIDIA also develops and markets products for advanced networking, data centre central processing units and computer-assisted driving. In these areas, both NVIDIA and its competitors rely on Arm’s technology to develop their own products.

Because Arm’s technology is a critical input that enables competition between NVIDIA and its competitors in several markets, the complaint alleges that the proposed merger would give NVIDIA the ability and incentive to use its control of this technology to undermine its competitors, reducing competition and ultimately resulting in reduced product quality, reduced innovation, higher prices and less choice, harming the millions of Americans who benefit from Arm-based products. According to the complaint, the acquisition will harm competition in three worldwide markets in which NVIDIA competes using Arm-based products:

• High-level advanced driver assistance systems for passenger cars.
• DPU SmartNICs, which are advanced networking products used to increase the security and efficiency of data centre servers.
• Arm-based CPUs for cloud computing service providers.
   

The complaint also alleges that the acquisition will harm competition by giving NVIDIA access to the competitively sensitive information of Arm’s licensees, some of whom are NVIDIA’s rivals, and that it is likely to decrease the incentive for Arm to pursue innovations that are perceived to conflict with NVIDIA’s business interests. These licensees rely on Arm for support in developing, designing, testing, debugging, troubleshooting, maintaining and improving their products, so the NVIDIA acquisition is likely to result in a critical loss of trust in Arm and its ecosystem, the complaint alleges.

The acquisition is also likely to harm innovation competition by eliminating innovations that Arm would have pursued but for a conflict with NVIDIA’s interests. The merged firm would have less incentive to develop or enable otherwise beneficial new features or innovations if NVIDIA determines they are likely to harm the company, the complaint alleges.

The FTC vote to issue the administrative complaint was 4–0. The administrative trial is scheduled to begin on 9 August 2022.

Image credit: ©stock.adobe.com/au/Vitalii Vodolazskyi

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