Nvidia is in talks with SoftBank to acquire British chipmaker ARM. SoftBank, a Japanese mega investor, bought ARM for $32 billion about four years ago. But with SoftBank losing money in Uber, WeWork and most of its investments, it has to sell assets to recalibrate. If this deal goes through, Intel Corp could be severely wounded – call it a Blackberry inflection point when Blackberry (actually Research in Motion) lost to Apple.
ARM is an English tech company with a great reputation in chip making. It makes chips for modern devices including smartphones, an area where Nvidia is yet to find foothold. But there is a challenge; Bloomberg reported that ARM’s customers, including Apple, Samsung, Qualcomm, Advanced Micro Devices and Intel could demand assurances that a new owner would continue providing equal access to ARM’s instruction set. It was the concern that led to SoftBank buying ARM the last time it went up for sale, because it is a neutral company.
SoftBank is looking for money to offset its heavy debt by selling off some of its assets, including part of stake in Alibaba, and a part of its holdings in T-Mobile US Inc. a sale of ARM at this point means the Japanese conglomerate will have more money at its coffers to appease distraught investors.
Intel has been disintermediated by TSMC with its legendary manufacturing moat dismantled by the global contract chip manufacturer. The implication is that the castle which Intel has protected for decades is largely vulnerable now. Nvidia does not build big foundries but focuses on R&D designs while its manufacturing partners make the chips. It is a leader in modern chips for datacenters, gaming, AI and more. If ARM goes to Nvidia, it will pick a huge part of the mobile sector, and if that happens, Intel will bleed for years.
Yes, Intel used to run the most advanced chip factories in the world, and companies depended on it for the most advanced chip designs. But with the advancement of TSMC and Samsung Electronics, companies can practically do the other thing Intel does: chip design. That means, they design and ask TSMC to manufacture. The ability to do that via TSMC without investing in foundries is a new level of disruption for Intel.
Apple had taken its Mac chips from Intel, and would design and fabricate with possibly TSMC or Samsung since other players like GlobalFoundries remain weak. Other companies will do just that. As that happens, the largely closed system of Intel will begin to make way for the ARM business model. Provided there is TSMC to make the chips after circuit designs, most companies will go all the way to designing internally and sending to TMSC to fab.This was not possible in the past as TSMC was weak, but over the last few years, TSMC has evolved to be as good as Intel, if not better.
Intel’s investors are already rattled by Apple big exit, moving its Intel business for Mac processors in-house. This ARMed Nvidia deal could break more investors (see the stock chart below).