Arm deal: Nvidia’s bid could harm Britain’s tech industry
In Whitehall, Dominic Cummings is likely chewing on a chunk of sofa. The cause of this rage? The US chip company Nvidia’s proposed purchase of the UK chip designer Arm Holdings from its previous owner, Softbank, for the sum of $40 billion, the biggest ever semi-conductor business deal.
If you own a mobile phone the odds are it runs on a chip with a central processing unit (CPU) designed by Arm. Arm’s share of the mobile phone microprocessor market is an astonishing 95%. In 2018, it claimed to provide 90% of controllers in the “internet of things” that includes everything from smart speakers to FitBits. Apple is starting to adopt Arm designs for its new range of laptops.
As a recently leaked email revealed, Cummings is absolutely determined that the UK should nurture its own $1 trillion tech company for reasons tied as much to his futurist geopolitical visions as economics. With DeepMind acquired by Google back in 2014 – something which apparently haunts the dreams of Cummings and his close associates – the UK’s best bet to fulfil this dream now seems to be holding onto Arm.
However, Cummings’ anxieties about the deal are shared by others, many of whom are far from traditional allies. Among those raising the alarm are both of Arm’s co-founders – one of whom has started a Save Arm petition – along with influential Tory backbenchers and Labour’s Shadow Business Secretary, Ed Miliband.
Miliband has taken a firm line saying that ministers should act to ensure the deal was fair and obtain legally binding commitments to protect jobs in the UK. The Culture Secretary Oliver Dowden is also said to be considering referring the case to the Competition and Markets Authority on national security grounds, though there are conflicting reports on which way he’s leaning.
The concerns about the proposed purchase are both economic and geopolitical. For many in UK politics, Arm looks like not just a potential source of thousands of jobs but also a tool that will help Britain hold its own on the world stage. As far as they are concerned, a purchase by Nvidia could threaten both.
From an economic perspective, Nvidia poses a potential threat to Arm’s unique business model. Behind Arm’s phenomenal success lie two factors. The first is a decisive technological edge. When it comes to designing CPU architecture no one can match Arm’s ultra-efficient low-power CPUs. The second is its business model. Arm does not produce any chips itself; instead it simply licenses its designs to other companies who then build and produce a full chip with Arm’s CPUs at their heart.
As one hardware engineer put it: “Arm is one of the great examples of a technological monopoly. No one else does what they do. It just wasn’t a problem as it was the Switzerland of the design world. Everyone could rely on them, and this let Arm have a finger in every pie.”
According to critics of the deal, acquisition by Nvidia could spell the end of this model. Nvidia is a direct competitor with a number of Arm’s clients in the semiconductor industry. This rivalry looks set to only intensify with Nvidia’s specialty, high-end graphics processing units (GPUs), becoming vital for AI – something many think Arm’s CPUs will complement.
All this gives Nvidia a worrying incentive to nobble its opponents who also use Arm chip architecture. This could be done by ceasing to license Arm’s new designs, only licensing slightly inferior models to its rivals or simply only licensing Arm’s best designs to other companies at some time after Nvidia has already integrated them into its own products. Nvidia would gain an advantage, but the business model that has underpinned Arm’s incredible success would be gone.
Nvidia has promised it will not do this, and has even suggested it will expand on Arm’s business model by licensing out some of its GPU designs. But Nvidia already has a questionable reputation when it comes to working with others. Apple, a major Arm client, dropped Nvidia GPUs from its line-up completely in 2009 following a dispute, and has since pointedly made it difficult to use Nvidia products on Macs.
Many analysts are already predicting a rush to alternatives. One option is Risc-V, a chip architecture design initiative founded on idealistic open-source (i.e. royalty free principles), despite it only having produced low-value chips so far. Alternatively, companies might start to design their own chip architectures.
The reservations are shared by politicians in both major parties. Daniel Zeichner, Labour MP for Cambridge, where Arm is based, said: “Nvidia is a very aggressive company and a chipmaker in its own right. It’s not for nothing many are sceptical that it will maintain Arm’s neutrality.”
Equally worrying for Zeichner and others is the fact that Nvidia is a United States-based company. The most obvious concern is that the jobs will be shipped abroad. Indeed, when Arm was first sold to Softbank the UK government obtained legal guarantees that jobs would kept in Britain.
Nvidia has also promised this, but so far the government has obtained no legal commitments, much to Zeichner’s disappointment. “We need promises to become guarantees. In 2016 when Softbank bought Arm the UK government coordinated its intervention to ensure jobs stayed in the UK with the announcement of the deal. This government seems a lot less on the ball.”
Additional concerns about Arm’s exposure to the US legal system is the point at which economic and geopolitical concerns intertwine. For the US, computer chips are a vital strategic product and it has sought to sharply limit Chinese access to them. The Chinese tech company Huawei, which has been singled out for particular pressure by the Trump administration, expects to run out of chips in the near future.
Arm China is a vital branch of the company, accounting for 1/5 of all of its sales, according to a statement in 2018 by Softbank, with key clients including Huawei’s HiSilicon division. If bought by a US company it is easy to imagine an American government seeing Arm as a wonderful new weapon with which to prosecute its tech war.
For Zeichner this sits uneasily. “What does this mean for our digital sovereignty? As things stand we’re pretty much told what to do by the Americans. Under normal circumstances the US is our ally but things are a bit harder to read right now.”
Tom Tugendhat MP, Chair of the Commons Foreign Affairs Committee also spoke of digital sovereignty with regards to Arm. “Arm is a world leader in technology and it is essential it remains in the UK. In the 19th century sovereignty was based on regiments and gunboats, in the 20th it was trade deals and in the 21st it will be data.”
In an intriguing analogy he discussed how in prior centuries many people could produce carbon for gunpowder and iron for gun barrels, but very few could make precise glass sights for rifles which conferred a great advantage. High-end tech was necessary to compete effectively. As such, he says: “At the very least production, investment, and most vitally the IP should remain in the UK.”
If, as is suspected, these concerns are shared by influential figures in the UK government then its relative silence on the matter as compared to the firm intervention in 2016 is somewhat curious. With discussion in parliament apparently planned for Monday, Arm may prove a vital test case about how prepared Boris Johnson’s new government is when it comes to taking a more interventionist economic policy and redefining Britain’s geopolitical role.