Nvidia merger with ARM is very exciting

In September 2019, Nvidia announced the acquisition of ARM for US$ 40 billion. If this deal is not the most meaningful in terms of market cap, it is one that may have the most impact over the years to come.

The deal won’t be officially completed until it gets approved by the US, UK, EU, and China and it will probably face some hurdles even though it doesn’t seem to really increase market power for either ARM or NVidia while positioning the company for the upcoming world moving forward. NVidia is not expecting the close of the transaction until March 2022.

The merger of ARM and NVidia combines two different types of companies into one:

ARM is focused on energy-efficient and small size chip design. ARM has developed know-how in creating chip designs that are energy-efficient with solid computing throughputs and a low maintenance cost. His market focus is mobile and getaways and his business model is open licenses to chip developers. With that approach, ARM has been able to build an ecosystem of more than 13 million developers.

In 1999, Nvidia initially established itself in the Graphics Processing Unit (GPU) and quickly gain market share in the Gaming and professional markets. In 2008, NVidia launched a more generic stream processing GPU which provides parallel processing capabilities that found its way into fields such as Machine Learning, Oil Exploration, Automotive. Today, NVidia has a market share of 80% of the GPU market and is the biggest semiconductor company ahead of Intel and with a fraction of its revenue. NVidia has an ecosystem of 2 million developers.

The combination has the potential of creating a very powerful company very well positioned for the future of Edge Computing and Distributed Apps. It has the biggest developer ecosystem. The short term strategy of the company will be to:
1) Provide NVidia GPU technology to ARM customer base in the smart device edge and constrained device edge;
2) Provide ARM CPU technology through NVidia for On-Prem Data Center Edge, Access and Regional Edge and Cloud Data Center focusing on lowering energy consumption, increasing throughput;
3) Maintain ARM business model for the low end of the market and NVidia for the high end;
4) Combine both companies’ R&D to create the most efficient AI hardware on any type of platform from constrained devices to data centers. This will create enormous competitive pressure in the Edge AI space at the silicon level;
5) Significantly increase ARM R&D in existing markets and expand into new markets such as robotics and self-driving cars.

The major challenge will be to retain ARM customers such as Intel, Qualcomm, Apple, and AMD who are competing with NVidia on the higher end. Even if NVidia maintains the ARM business model and provides some type of a Chinese wall between the two companies, customers may find it difficult to collaborate with a competitor.

Despite this challenge, I would expect NVidia with this acquisition to become the first trillion-dollar revenue semi-conductor company in the near future.