UK announces national security probe of Nvidia’s $54bn Arm deal

The British government has launched an in-depth investigation into US chipmaker Nvidia’s takeover of the UK-based technology company Arm on national security grounds, throwing another hurdle in the path of the $54bn deal.

Digital and culture secretary Nadine Dorries has ordered a phase 2 investigation into the transaction on public interest grounds, meaning it will now be subject to a full-blown probe into antitrust and security issues. The UK competition watchdog uncovered “serious competition concerns” with the deal in July.

In a letter to the parties published on Tuesday, the government said: “The secretary of state believes that the ubiquity of Arm technology makes the accessibility and reliability of Arm IP necessary for national security.”

Arm’s chip designs are used by almost all smartphone manufacturers.

The government said the National Cyber Security Centre had also identified “a number of potential risks to national security” as a result of the deal.

In a statement, Dorries said Arm had a “unique place in the global technology supply chain and we must make sure the implications of this transaction are fully considered”.

Nvidia agreed to buy Cambridge-based Arm — once one of the crown jewels in Britain’s tech sector — from Japan’s SoftBank last year in the largest-ever deal in the global semiconductor industry. The bid has since been bogged down by regulatory probes in the UK, Brussels and China, forcing Nvidia to admit in August it was unlikely to be able to clear the deal within 18-months as it had hoped.

Nvidia said on Tuesday: “We plan on addressing the CMA’s initial views on the impact of the transaction on competition, and we will continue to work with the UK government to resolve its concerns.” It said the deal would “help to accelerate Arm and boost competition and innovation, including in the UK”.

Arm’s designs are used in devices including smartphones, smart TVs and self-driving cars, and relied heavily upon by Nvidia’s rivals — something regulators find problematic. The Competition and Markets Authority found “serious competition concerns” with the deal in the summer, claiming Nvidia could harm competitors by cutting off access to Arm’s technology, or raising prices. Nvidia has promised to maintain an open licensing model and chief executive Jensen Huang has said he has no intention of “throttling” Arm’s supply to any customer.

The CMA will now have 24 weeks to conduct its investigation before delivering a final report to the government, and can extend that deadline by a further eight weeks.

Regulators in the EU are also concerned that Nvidia could undermine its rivals and dampen innovation through its purchase of Arm. The deadline for that probe is March 15 2022, though it could be extended, further pushing out the deal timeline.

Launching the probe last month, Margrethe Vestager, the EU’s executive vice-president in charge of competition and digital policy, said: “Our analysis shows that the acquisition of Arm by Nvidia could lead to restricted or degraded access to Arm’s IP, with distortive effects in many markets where semiconductors are used.”

Despite regulatory pressure, Masayoshi Son, the chief executive of Arm’s Japanese owner SoftBank, told investors earlier this month that he expected the deal to be cleared. During an earnings call, he said: “Regulators want to review very carefully, and they have gone into second stage, but I still believe that review should be completed successfully.”

Additional reporting by Javier Espinoza in Brussels