Since the beginning of 2020, NVIDIA has been on the road to success. Since ARM was put on the shelf by Softbank, Apple and Samsung have been the two main players in the deal. After both have shown no interest, a new potential buyer in the form of NVIDIA has emerged. And as the reports continue, it looks like the biggest union in the semiconductor industry is taking shape.
What can ARM bring to Nvidia?
If the takeover of ARM is successful, it could have unimaginable consequences for the semiconductor industry in the broader sense.
Both the Financial Times and Bloomberg have reported on the news that NVIDIA is in talks with SoftBank. The two sides are planning to conclude the deal within a few weeks. It is interesting to note that NVIDIA is reportedly the only company holding concrete talks with SoftBank.
In previous reports, NVIDIA seemed to play a minor role, with Apple and Samsung being the main characters in the story. However, as in 2010, Apple flatly rejected the takeover bid. Samsung also has no intention of taking over Arm, and according to analysts at Objective Analysis, the takeover is too big, the two parties’ business philosophies are too different and would also break Samsung’s regular semiconductor business processes.
Apple has similar reasons, although the acquisition of ARM may consolidate its own research chip business, the company’s total contribution is not much, and the acquisition will also involve significant regulatory risks.
The biggest problem is that the world’s largest chip companies are customers of Arm, Apple, Samsung, NVIDIA, Qualcomm, TI, Hisense, etc. If any of them were to acquire Arm, it would change their relationship with many competitors and destroy the existing balance in the industry.
Approximately 22.8 billion semiconductor chips based on Arm’s designs will be shipped in 2019, 30 percent more than three years ago. But the enormous cost of his foray into new business has severely impacted Arm’s profits. The financial figures show that Adjusted EBITDA (a measure of profitability) for fiscal 2019 fell to $276 million, a decrease of around 30 percent from 2016. A key factor contributing to this decline is rising labor costs: the company’s total payroll increased by 40% over the three-year period.
In addition, Arm’s income from patent royalties has not increased significantly and income from patent royalties will not exceed $600 million in 2018 and 2019. The weak semiconductor market is the main factor, but Arm’s own operations are also experiencing some problems.
Softbank paid $32 billion in cash to acquire Arm in the first place, and now, of course, it hopes to find a strong buyer for the acquisition. Apart from Apple and Samsung, NVIDIA, whose market capitalization has just exceeded that of Intel, is a natural fit.
According to the profit report for the 2021 fiscal year, the company’s first-quarter revenues were $3.08 billion (the market expected $2.992 billion), an increase of 39% over the previous year; gross margin was 65.1%, the highest in 17 years; net income was $917 million, an increase of 133% over the previous year; and non-GAAP earnings per share were $1.80, an increase of 105% over the previous year.
NVIDIA’s stock market performance is also in the red; as of July 31, local time in the United States, its market capitalization reached $261.23 billion. Besides TSMC, NVIDIA is currently the strongest semiconductor company.
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