Nvidia's $40 billion deal to buy Arm is under scrutiny

Nvidia's $40 billion deal to buy Arm Ltd. from Softbank is taking heat from various sides after it was announced on Sunday.

The opposition to the deal is two-fold. The first is Nvidia's chipmaker rivals are worried about Arm's array of designs and intellectual property being under the auspices of Nvidia. Arm licenses its intellectual property to customers such as Intel, Samsung, and Qualcomm, all of which compete at some level against Nvidia.

To allay those fears, Nvidia said it would continue Arm's open licensing model and customer neutrality, as well as expand Arm's IP licensing portfolio within its own technology.

Arm's open approach for licensing its designs to various companies has created a vast ecosystem that spans smartphone central processing units (CPUs), computers and tablets. To date, 180 billion chips have shipped with Arm's licenses.

Nvidia, which makes its headquarters in Santa Clara, California, has pledged to keep Arm's U.K. headquarters, which would, in theory, keep it from becoming a political football between the U.S. and countries such as China. It also remains to be seen how many of Arm's 3,000 U.K.-based employees would retain their jobs once the deal is done.

The second major point of contention for the deal is within the U.K. According to a story by The Guardian, the Labour party, a science and technology workers’ union and Arm co-founder Hermann Hauser have called on the government to use its powers to block foreign takeovers, or attach conditions to them.

Hauser has said that Nvidia would “destroy” the Arm business model of licensing its intellectual property rather than producing its own chips, according to The Guardian.

Nvidia said it would expand Arm’s R&D presence in Cambridge by establishing an artificial intelligence research and education center.

“This combination has tremendous benefits for both companies, our customers, and the industry," said Jensen Huang, founder and CEO of Nvidia, in a statement. "For Arm’s ecosystem, the combination will turbocharge Arm’s R&D capacity and expand its IP portfolio with Nvidia’s world-leading GPU and AI technology."

SoftBank will retain a 10% stake in Nvidia.  All-in-all, it was a good investment by SoftBank CEO Masayoshi Son. SoftBank bought Arm for $32 billion four years ago.

Arm posted revenue of about $1.9 billion in revenues last year while Nvidia posted revenues of close $11 billion in its last fiscal year.

According to the terms of the deal, Nvidia will pay SoftBank $21.5 billion in Nvidia common stock and $12 billion in cash, which includes $2 billion payable at signing. SoftBank could receive up to $5 billion in cash or stock, subject to specific financial performance targets by Arm.  Nvidia will also issue $1.5 billion in equity to Arm employees.

The deal needs regulatory approvals from the U.K., U.S., China and the European Union. Nvidia said it expects the deal to close in 18 months, but there's plenty of opposition to it both within the U.K. and by Nvidia's rivals.

Building the Nvidia juggernaut

Last year Nvidia emerged as the winner for buying chipmaker Mellanox Technologies for $6.9 billion, which closed this year. In May, Nvidia said it was buying Cumulus Networks for an undisclosed sum.

RELATED: Nvidia nabs Cumulus Networks for networking software play

"Nvidia is becoming a giant to contend with," said Scott Raynovich, the founder and chief analyst of Futuriom. "Mellanox, Cumulus, and now Arm — it’s clearly preparing to own the battle for the cloud edge."

Aside of its CPU licenses, Arm has also made its mark in the telco industry. Vodafone Group recently conducted a proof-of-concept trial of universal customer premises equipment (uCPE) by working with Arm, Telco Systems and NXP Semiconductors.