The Federal Trade Commission said late Thursday that it has filed a lawsuit to stop Nvidia’s $40 billion acquisition of Arm. If the case is successful, Nvidia will be banned from acquiring Arm, therefore putting a stop to the possible merger.
The purchase, according to the regulator, will significantly impede competition in areas such as Arm-based datacenter CPUs, automobile autopilot systems, and smart network cards for datacenters.
In the statement, the FTC alleges that “The proposed vertical deal would give one of the largest chip companies control over the computing technology and designs that rival firms rely on to develop their competing chips.” The FTC opposes vertical integration of Nvidia and calls it a precedent of “an illegal vertical merger.”
“The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies,” said FTC Bureau of Competition Director Holly Vedova in a statement by the commission.
In mid-September 2020, Nvidia declared its desire to purchase Arm to become a powerhouse with both general-purpose and graphics/stream-processing capabilities. Nvidia tends to dominate the markets in which it engages. According to Jon Peddie Research, the business leads discrete GPU supply for PCs (83 percent as of Q2 2021), as well as HPC and edge/technical computing (over 90 percent ). According to the US FTC, Nvidia is a danger to competition since it is a powerful organization with skilled management and certain efficient business practices.
“Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets,” said FTC Bureau of Competition Director Holly Vedova. “This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals. The FTC’s lawsuit should send a strong signal that we will act aggressively to protect our critical infrastructure markets from illegal vertical mergers that have far-reaching and damaging effects on future innovations.”
The complaint by FTC lists three technologies that concern the company:
- High-Level Advanced Driver Assistance Systems for passenger cars.
- DPU SmartNICs, which are advanced networking products used to increase the security and efficiency of data center servers.
- Arm-Based CPUs for cloud computing service providers.
Nvidia already has a presence in all three of these areas, which leads to the allegation of improper vertical integration.
The legal system in the United States provides impediments to vertical integration, but at least three precedents against vertical integration of major market participants have been established by various courts, therefore the FTC has the incentive to challenge these verdicts.
However, the timing of the lawsuit may be more crucial than its contents. The administrative trial is due to commence on August 9, 2022, which is far later than Nvidia had initially planned for the acquisition to finish.
This would be 18 months from the date of the announcement, with the possibility of an additional six-month extension. If the transaction fails to conclude, Nvidia will be required to pay Arm Holdings a $1.25 billion penalty.