By Cara Lombardo, Maureen Farrell and Asa Fitch
The impending sale of Arm Holdings to Nvidia Corp. for $40 billion could have wide-ranging implications for the global semiconductor industry, further elevating one of its highest fliers and unwinding another big bet by SoftBank Group Corp.
The Japanese technology conglomerate said late Sunday that it has reached a deal to sell Arm to Nvidia for a mix of cash and stock, confirming a report Saturday by The Wall Street Journal. Nvidia will pay $21.5 billion in stock and $12 billion in cash. SoftBank may also receive up to $5 billion in cash or stock subject to Arm hitting financial-performance targets. Nvidia will also issue $1.5 billion in stock to Arm employees.
Nvidia, which makes graphics processors, and Arm, which designs microprocessors that power most of the world's smartphones, may not be household names, but they are some of the biggest players in the chip industry. A union would instantly lift Nvidia, whose stock has been one of the market's best performers this year, into a dominant force in the market for smartphones and a big supplier of technology for a range of other devices from smart speakers to fitness trackers.
The deal, one of the largest semiconductor takeovers ever, marks a win for SoftBank and its chief executive, Masayoshi Son, which bought Arm four years ago for $32 billion and had struggled to jump-start growth in the business.
For Nvidia Chief Executive Jensen Huang, it is the biggest gamble since he helped co-found the chip maker in 1993.
Nvidia is a fast-growing industry player best known for making the graphics chips that power videogames like on the wildly popular Nintendo Switch. The chips have been in hot demand during the pandemic as lockdowns keep people at home.
Nvidia's chips also go into data centers that are increasingly in demand as remote work has taken off, and they have become the workhorses of artificial-intelligence calculations that have grown as more businesses embrace automation.
Success in those markets has driven investor enthusiasm that has led Nvidia to generate record sales in its most recent quarter and its shares to double this year. With a market capitalization of about $300 billion, Nvidia is the most valuable U.S. semiconductor company after overtaking Intel Corp., whose stock has slumped amid production missteps.
The deal would add around $1.9 billion in annual sales to the $11 billion Nvidia, based in Santa Clara, Calif., posted for last year. It would also add breadth to its relationship with customers, including the world's largest smartphone makers, namely Apple Inc. and China's Huawei Technologies Co., which would owe Nvidia license fees for the use of Arm technology.
But buying Arm also carries risk for Nvidia.
Arm, founded in 1990 as a spinoff of a joint venture that included Apple, designs blueprints for clients, including other chip companies, to make smartphone processors. Its designs are used in processors that power around 90% of the world's smartphones and in many other types of mobile chips.
Following a sale to Nvidia, customers like Samsung Electronics Co., Apple and Qualcomm Inc. would face the prospect of one of their chip-making competitors owning Arm, potentially undermining its attractiveness as a neutral supplier.
Analysts have said that a Nvidia purchase of Arm wouldn't go down well, with Bernstein Research's Stacy Rasgon writing in a note that any single company acquiring Arm "would wield enormous power over competitors," calling the outcome "an unpalatable situation."
The deal also is likely to face regulatory scrutiny, particularly given the heightened tensions between the U.S. and China that have led to close reviews of semiconductor deals. President Trump blocked Broadcom Inc.'s $117 billion takeover bid for San Diego-based mobile- phone chip maker Qualcomm Inc. in 2018, amid fears that it could hamper U.S. dominance in emerging 5G technology. Qualcomm's proposed $44 billion purchase of Dutch chip maker NXP Semiconductors NV fell through after China failed to give its approval.
Nvidia's biggest acquisition to date, a $7 billion deal for Mellanox Technologies Ltd., faced delays because of protracted regulatory scrutiny in China. It closed in April.
China could bristle at the idea of Arm, a company used by many Chinese smartphone makers, falling into the hands of an American company. Arm's ownership, first as a publicly traded British company and later as a subsidiary of Japan's SoftBank, largely kept it outside the fray of Sino-American friction.
The transaction, which would make SoftBank one of Nvidia's largest shareholders, is one of a series of big asset sales by the Japanese firm.
It had been under pressure to shore up its flagging stock price and promised some $40 billion in asset disposals. Most or all of that is already under way or completed, and SoftBank shares are up more than 20% this year. Among the sales: big chunks of its holdings in China's Alibaba Group Holding Ltd. and T-Mobile US Inc. following the wireless provider's merger with Sprint Corp.
At SoftBank, Mr. Son has been working with a small team to negotiate the Arm deal including the chief executive of the chip company, Simon Segars, Chief Financial Officer Yoshimitsu Goto as well as Rajeev Misra, CEO of the firm's giant Vision Fund, and Akshay Naheta, another SoftBank executive.
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