Nvidia eyes largest-ever chip deal in pursuit of SoftBank’s Arm

Arm Ltd., the chip designer that’s one of SoftBank Group Corp.’s most prized holdings, is attracting takeover interest from Nvidia Corp. in what could become the largest-ever semiconductor deal, people with knowledge of the matter said.

Nvidia, the world’s largest graphics chipmaker, made an approach in recent weeks about a potential deal for Cambridge, England-based Arm, according to the people. SoftBank has been exploring options to exit part or all of its stake in the business, which it acquired for $32 billion in 2016, Bloomberg News has reported.

Other potential bidders could also emerge, the people said, asking not to be identified because the information is private. Nvidia’s interest may not lead to a deal, and SoftBank could opt to pursue a listing of the business instead, the people said. Representatives for SoftBank, Arm and Nvidia declined to comment.

Arm’s technology underpins chips in everything from Apple Inc. devices to connected appliances. It’s becoming more valuable as the company pushes for its architecture to be used in more smart cars, data centers and networking gear. The company could be worth $44 billion if it pursues an initial public offering next year, a valuation that may rise to $68 billion by 2025, according to New Street Research LLP.

Trophy assets

Technology billionaire Masayoshi Son has been selling off some of the trophy assets that he’s collected under his company, SoftBank, and its $100 billion Vision Fund. In recent months SoftBank offloaded part of its stake in Chinese internet giant Alibaba Group Holding Ltd. and a large chunk of its holdings in wireless carrier T-Mobile US Inc.

Son has spoken in exalted terms about his hopes for Arm, a key building block of his vision to profit from a connected world where more and more everyday gadgets are linked up to the internet. Arm will be "the center of the center of SoftBank” and play a key role in bringing about advanced artificial intelligence, Son said in 2016, calling the purchase of Arm "one of the most important acquisitions” he’d ever made.

SoftBank has since dialed back some of its ambitions as it seeks to pay down debt and fend off pressure from activist investor Elliott Management Corp. In May, the company reported a record operating loss after writing down investments in companies such as WeWork and Uber Technologies Inc.

Shares of Nvidia have surged more than twentyfold over the past five years, giving it a market value of $257 billion at Wednesday’s close. The Santa Clara, California-based company has segued its dominance of graphics chips used by gamers into new areas such as data center AI processing. It’s also taken a foothold in the nascent market for systems that will run self-driving cars.

Apple approach

Those moves have made Nvidia a bigger threat to a broader range of companies, including Intel Corp., Qualcomm Inc. and Advanced Micro Devices Inc. — all of which license Arm’s technology. Earlier in July, Nvidia briefly surpassed Intel in market value.

SoftBank previously owned a stake in Nvidia, having quietly amassed $4 billion of shares in 2017, people with knowledge of the matter said at the time. The Japanese firm said in early 2019 that the Vision Fund had sold off all of its Nvidia holding.

Arm sells semiconductor designs and also licenses the fundamentals of how chips communicate with software, known as an instruction set. That blueprint underpins much of modern electronics and is the core value of the company. Even some companies that design their own chips, such as Apple, do so using Arm’s instruction set.

As part of the sale process, SoftBank approached Apple to gauge its interest in acquiring Arm, according to people familiar with the matter. While the two firms had preliminary discussions, Apple isn’t planning to pursue a bid, the people said.

Regulatory scrutiny

That’s because Arm’s licensing operation would fit poorly with Apple’s hardware and software business model, the people said. There may also be regulatory concerns about Apple owning a key licensee that supplies so many rivals. An Apple spokesman declined to comment.

Still, the Cupertino, California-based technology giant has a vested interest in the fate of Arm. The chip designer’s technology is an important component of the more than 2 billion custom processors that Apple has shipped in iPhones and other devices over the past decade. Mac computers will start relying on the technology later this year.

When SoftBank bought Arm, the two unveiled a strategy to rapidly increase the chip technology company’s reach by going on a hiring binge and increasing its chip-design efforts. The plan, according to Arm Chief Executive Officer Simon Segars, was to prioritize expansion and investment before eventually reining in costs in preparation for a return to the public markets.

Any customer trying to acquire Arm would trigger regulatory scrutiny. Other companies using its technology would likely oppose a deal and demand assurances that a new owner would continue to provide equal access to Arm’s instruction set. Such concerns resulted in a neutral company — SoftBank — buying Arm the last time it was for sale.