Nvidia’s latest earnings report is the ‘nail in the coffin’ of $ 40 billion ARM deal



Nvidia’s (NVDA) $ 40 billion deal to buy UK chip developer ARM from SoftBank is all but dead. At least that’s what Chris Rolland, senior equity analyst at Susquehanna, took away from Nvidia management during the company’s third-quarter earnings call on Wednesday.

“I think some comments [on Wednesday] kind of puts the last nail in the ARM coffin here, ”Rolland told Yahoo Finance Live.

Nvidia initially went public with the $ 40 billion deal in September 2020 with hopes that it would be finalized within 18 months, or in the first quarter or 2022. During the company’s earnings call, however , he outlined the huge regulatory hurdles he faces, including improving regulatory oversight in the UK, where ARM is based. The US, EU and China are also expected to approve the deal.

“UK and EU regulators have refused to approve the transaction in Phase 1 of their review processes, have expressed many concerns, have started a more in-depth Phase 2 review on the impact of the competition transaction and, in the UK, a Phase 2 review of the impact on UK national security interests, ”the company said in a statement following its earnings report.

“Although regulators and some ARM licensees have expressed concerns or opposed the transaction, we continue to believe in the merits and benefits of the acquisition for ARM, its licensees and the industry.”

Tech industry players including Microsoft (MSFT), Qualcomm (QCOM) and Google (GOOG, GOOGL) have opposed the proposed deal.

ARM licenses its designs and software to third parties, including Qualcomm, Apple, Google, and Nvidia, who use these designs to develop their own custom chips. ARM is widely viewed as a neutral player in the tech industry, as it partners with a wide range of companies. Think of it as the Switzerland of the tech world.

The fear is that if Nvidia buys ARM, this neutrality will fade. Nvidia, however, rebuffed that claim.

“The advantage of ARM being part of Nvidia is that we could accelerate their R&D ladder,” Nvidia CEO Jensen Huang told Yahoo Finance Live. “ARM, as you know, is very successful in mobile devices. But we could help them be more successful in all other areas of IT.

If the deal is done, as Rolland says, investors don’t mind. Shares of Nvidia jumped more than 8% on Thursday following the company’s third-quarter earnings report, in which Nvidia announced that its revenue rose 50% year-over-year.

“It was already [baked] in the stock, the fact that this agreement will not take place, ”said Rolland.

It’s not as if Nvidia hasn’t worked with ARM in the past and won’t in the future either. As Rolland points out, Nvidia previously created its own ARM-based server. And its Tegra processor is the ARM-based chip that powers Nintendo’s Switch console.

“They could allow that, and they’ve had some success in the past on the processor front,” he said.

As for Nvidia’s ability to cope with the continuing chip shortage and the tightening of the global supply chain, Rolland says Nvidia is far better off than other chipmakers.

“Nvidia is in a very privileged position, especially compared to its peers. And this because of its dual sourcing and sourcing strategy. They hit both the Samsung and TSMC smelters for sourcing and because of that puts them in a much better position overall, ”said Rolland.

Still, that doesn’t mean that Nvidia chips will be easier to obtain anytime soon. According to Huang, the chip shortage will limit supply until next year.

As for Nvidia’s skyrocketing valuation – the company’s price-to-earnings ratio stands at 113.45% for the past 12 months – Rolland says it’s broadly justified.

“It is a company that has constantly beaten, grown and worked in the manifold and taken massive shares in potentially huge markets,” he said, “and that is what is driving the enthusiasm around the company. ‘action.”

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