09/17/2020

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NVIDIA Buys Arm for $40 Billion



The Largest Semiconductor Deal Ever

NVIDIA (NVDA) will buy Arm, a UK-based chip designer, for $40 billion from SoftBank. This is the largest deal ever to take place in the semiconductor industry.

NVIDIA will pay $12 billion in cash and $21.5 billion in stock, as well as a $2 billion fee when the deal is signed. If Arm reaches certain financial goals, SoftBank may receive an additional $5 billion in cash and/or stock. (Full disclosure: SoftBank is also an investor in SoFi)

Arm designs chips, but does not make them. The company’s chip blueprints are used by companies from Apple (AAPL) to Qualcomm (QCOM), and are present in almost every mobile device in the world.

A Brief History

SoftBank acquired Arm in 2016 for $31.4 billion. The Japanese conglomerate’s stock soared yesterday on news of the deal with NVIDIA. SoftBank shares rose 10% in Tokyo—the largest jump in about six months.

Earlier in the summer, SoftBank also announced it would sell $21 billion of its stock in T-Mobile (TMUS). With the new influx of cash from these sales, SoftBank may channel some of these funds to startups through its Vision Fund.

NVIDIA’s Outlook

NVIDIA specializes in making graphics cards, which is a piece of computer hardware that produces the image you see on a monitor. The company has seen its revenue surge this year—in part due to more people playing video games during the pandemic. NVIDIA’s overall revenue climbed 50% during the quarter ending on July 26 and rose 39% during the previous quarter. The company expects 46% sales growth during its fiscal third quarter, equivalent to $4.4 billion in top-line revenue.

SoftBank was viewed as a neutral owner of Arm, but NVIDIA competes with some of the companies which use Arm’s designs. This could raise some questions as the deal goes through a regulatory approval process. However, all three companies involved are excited about the agreement and optimistic about the outcome.


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