NVIDIA’s major merger with ARM will change the chip industry.

Nvidia’s successful $40bn acquisition of Arm is expected to have a major impact on the chip world, but it will be many years before the impact of the deal is fully understood. More such deals are expected in the coming years due to a variety of factors, with increased interest in start-ups with innovative technologies and the easier way to raise money from the stock market. In addition, there are many emerging markets that are heating up, such as 5G, Edge Computing, AI/ML, and the continued growth of self-driving cars.

NVIDIA's major merger with ARM will change the chip industry.

In the short term, mergers and acquisitions in most industries will be affected by the new crown outbreak, but this will not last. Acquisitions are the fastest way to grow in size and improve the company’s products, as well as the way to quickly attract talent.

Nvidia’s acquisition of Arm is a combination of the world’s largest GPU supplier and the largest mobile processor IP provider, helping Nvidia expand its reach from data centers to edges and endpoints. The deal also helps the two companies position themselves in an uncertain but emerging world of edge computing, where highly specialized devices and servers are used to preprocess or process large amounts of data. In addition, Arm has a broad ecosystem.

“As a combined company, we can do a lot of things. The increased investment will enable us to actively drive the development of data centers and extend AI, which is already used extensively in data centers, to all corners and to the edge. Simon Segars, Arm’s chief executive, said: “IND has a large IP portfolio that can be used to build chips, products and systems. We license IP to the global semiconductor industry and build an ecosystem around it. As a result, we will have more IP licenses for our customers. “

NVIDIA's major merger with ARM will change the chip industry.

Photo from bioworld.

The success or failure of mergers and acquisitions, time will give the answer.

Nvidia’s acquisition of Arm is currently under review and approval by national regulators. Texas Instruments’ $7.6bn acquisition of Burr-Brown in 2000 appeared to be a sensational deal, but the results proved far more limited than initially thought, according to several people familiar with the deal.

The merger of the two companies strengthened TI’s capabilities in analog technology and strengthened the company’s business focus, but the impact on the industry as a whole was less pronounced. The same is true of TI’s $6.5bn acquisition of National Semiconductor in 2011.

By contrast, ADI bought Linear Technology for $14.8 billion in 2017 and Maxim Integrated for $21 billion, making it a strong competitor to TI, which has dominated the simulation field for decades. ADI’s acquisition has created more price and performance competition in this lucrative market, as well as opportunities for start-ups.

“Intel’s acquisition of Mobileye could be significant.”¬†“Broadcom’s acquisition by Avago is also an important deal,” Segars said. People have been talking about semiconductor integration for a long time, and that’s really happening. If you chart the market capitalisation of these companies, you’ll find long tails, which is really interesting. ADI’s acquisition of Maxim is another matter. Due to COVID-19, the acquisition is moving more slowly. It’s hard for companies that have never had an intersection to come together. Maxim and ADI have a long-standing relationship. Arm, Nvidia and Softbank also know each other. “

Mergers and acquisitions in EDA and IP have outsoed other areas of the chip industry.

EDA has more acquisitions than any other sector in the chip industry, although most acquisitions in the EDA industry are relatively small. However, the big three EDA companies would never have been the big three without acquisitions to drive their growth, and the chip industry is unlikely to grow as it used to. Synopsys alone has completed more than 100 acquisitions. Mentor has completed more than 70 acquisitions, while Cadence has completed more than 50. (This figure is not accurate because some are asset spin-offs and acquisitions, not the entire company.) )

“Many products are incremental and have improved both technically and economically. One of our very big acquisitions was Avant, where Synopsys established so-called design front ends, synthesis, simulation, timing, power consumption, and so on. At that time, the back end was physical design, it was layout and wiring, and some validation was done by different companies. Aart de Geus, Chairman and Co-CEO of Synopsys, said,

“In the late 1990s, I became increasingly concerned that from a technical point of view, the interdependence between design and back-end design would become stronger and stronger. This happened around 2000, when there were concerns about the impact of the downturn. It turns out that during the Great Depression of 2001, many consumers intended to cut back on spending. There’s only one company, Mentor, that’s somewhere in between, so we think it’s necessary to improve our ability to compete. “

It was Cadence that started the merger and acquisition of the EDA industry. “The two high-profile acquisitions in EDA are Cadence-Gateway and Cadence-Tangent.” “As the world shifts from schematics to RTL, Gateway has brought Cadence into the Veralog business developed by gateways, which has driven Veralog to the standard,” said Willy Rhines, honorary chief executive of SiemensMentor. Although the trade association is VHDL, Veralog is in the lead. “

“Equally important is Cadence’s acquisition of Tangent. Tangent is a door array router company (the best door array router company) that has also developed the ability to migrate to standard units. Earlier, Mentor IC Station and Cadence, the predecessors of Virtuoso from Solomon Design Automation, both offered similar products. Today’s IC Station may be Virtuoso, but the internal battle between SCS (Silicon Compiler System) andMentor’s IC Station has brought them to a complete standstill, providing Cadence with an opportunity. “

Arguably the most significant acquisition in the EDA industry involved Siemens AG’s acquisition ofMentor in 2016. Siemens, a conglomerate and Europe’s largest industrial manufacturing company, is part of a $4.5 billion deal that allows it to provide complete services from design software to complete semiconductor processes.

At the same time, It has made Mendor a strong company with far more capital than all EDA companies put in. From this perspective, Siemens will have revenues of more than $100 billion in 2019. The market capitalisation of all EDA companies is only a small part of that.

IP companies are also actively buying other IP companies, and Arm’s growth is at least partly due to years of acquisitions. Some EDA companies, not particularly Cadence and Synopsys, have also acquired many small IP companies.

Arteris IP Chairman and CEO K. “By far the most important acquisition in ip has been Synopsys’ nearly $1 billion business, focusing on peripheral I/O IP and PHY technologies,” says Charles Janac. Avda’s acquisition of Arm is extremely important for both the IP and semiconductor industries. Nvidia is trying to become the next generation computing platform, competing directly with Intel and AMD. So, with Nvidia’s support, perhaps the Arm architecture will be the next core of SoC. “

The key is synergy. “I used to work for Joe Costello, when he was chief executive of Cadence, and he had a few interesting ideas.” “It’s a good financial deal, but there has to be some synergy,” Janac said. If two public companies are combined, their sum should not be equal to 2 or 2.5, it should be 3 or 4. The two companies also need to be culturally compatible and actively working together. Another thing Costello says is that the best deal is that both sides are a little unhappy with the deal. If someone is really happy, it’s probably nothing. “

Major acquisitions in the processor and memory space.

In terms of processors, Nvidia’s sense of receiving Arm is not limited to one aspect. Arm’s ecosystem is so broad that the Arm processor core dominates everything from application processors in smartphones to a wide variety of portable devices, and of course, that’s not the only significant acquisition.

AMD acquired GPU maker ATI in 2006 for $5.4 billion, making AMD an important competitor to Intel in the data center market. AMD acquired ATI’s graphics business, which enabled them to further develop their CPU business on the basis of Intel-compatible CPUs.” Willy Rhines, honorary chief executive of SiemensMentor, said. ATI is a very unique company. If you look back at history, a new graphics company appears about every 10 years as graphics standards change. ATI is the only company that has survived for generations. “

In the storage space, a series of acquisitions led to the revival of Meiguang. “Hitachi and NEC merged to become Elpida, which was acquired by Micron,” he said. This did allow Medlight to retain its DRAM business, and today there are three of the world’s largest DRAM suppliers, and although Medlight is the smallest, the deal gives them enough technology and competitiveness, as well as the influence of Japanese companies. “

Shane Rau, vice president of research at IDC, agrees. “The acquisition of Erbida by Meguang has put them over the threshold,” he said. There are now three large memory companies, which are necessary to have enough supply and demand in DRAM. We expect the NAND market to also be consolidated. “

Government intervention and influence over acquisitions.

However, not all of the announced acquisitions will be realized. The review process could produce unintended consequences, and Governments may feel that the State is under threat. In the past, it was mainly the US government that was responsible for terminating or delaying major deals, but other countries, such as China, have begun to exert their market power, and China has vetoed Qualcomm’s $44bn takeover of NXP.

There are many similar cases. The most important first deal in the chip industry was Fujitsu’s attempt to buy Fairchild in 1987. At the request of the U.S. Department of Defense, the Commerce Department and the CIA, then-President Ronald Reagan intervened. The deal brought the chip industry, and the government in particular, to the fore for the first time, and prompted the birth of another industry giant.

“As a result of the failure of Fujitsu’s acquisition, U.S. National Semiconductor acquired Fairye Semiconductor.” “This deal is significant because National Semiconductor has kept its investment in research and development to a minimum for decades, and Fairyard Semiconductors, led by Don Brooks, then president and CEO, has developed outstanding new technologies,” Rhines said. It gives a new lease of life to National Semiconductor because a company that minimizes research and development investment and maximizes operational excellence buys a company that maximizes research and development investment. “

The U.S. government has also played an important role in two other deals that indirectly affect the chip industry. The first relates to a consent decree signed by IBM in 1956, which was designed to limit monopoly pricing of IBM’s bundled services, software and mainfly computers, known as the “market basket”.

IBM was the only company to offer these three features at the time, and since the platform was also the industry standard at the time, all software had to be compatible with IBM devices. As a result, IBM uses its market influence to use low-cost strategies to compete with any of these three segments.

By the time the PC era began in the early 1980s, IBM was still making money mainly from mainfringers and microcomputers, and its executives believed that PCs were just toys. So IBM’s idea is to sign deals with Intel and Microsoft instead of trying to own all the technology, rather than killing market runners again and facing more government intervention.

The U.S. government also interrupted the Bell system deal in 1982 to allow another deal to be built. The company relinquished control of Bell Operations, which was split into regional operating companies. Bell Labs has done a lot of work with the federal government, and at the time Bell Labs was one of the world’s leading research and development departments, on par with IBM. Bell Labs invented the first transistor in 1947, the first Unix operating system and the first optical router to become the foundation of Linux.

Bell Labs was sold to Alcatel in 2006 as part of Lucent as part of a spin-off and acquired by Nokia in 2016. Meanwhile, GlobalFoundries acquired IBM’s microelectronics business in 2015. The two acquisitions ended two of the largest semiconductor research businesses.

Although IBM is still working on chips for AI systems, in the United States, the heyday of corporate and corporate/government-funded semiconductor research, especially communications and computing research, is over.

Governments have also blocked other deals in the chip industry. The Committee on Foreign Investment in the United States (CFIUS) blocked Tsinghua Ziguang’s $23 billion acquisition of Meiguang in 2018. The U.S. Department of Justice also blocked a $9.3 billion merger of Apple Materials and TEL (Tokyo-based Technology) in 2015.

A $40 billion cap on the size of mergers and acquisitions.

Nvidia’s acquisition of Arm remains the largest, albeit modest, deal in the semiconductor industry. Avago bought Broadcom for $37 billion in cash and stock. It is worth noting, however, that there appears to be an acceptable ceiling.

Rob Lineback, senior market research analyst at IC Insights, said: “A few years ago, we determined that semiconductor mergers and acquisitions, excluding transactions related to systems-level and software businesses, had reached a ceiling of about $40bn. Qualcomm’s failed $44 billion acquisition of NXP was canceled in July 2018 after China delayed approval of the deal during a trade war. Broadcom’s $121bn hostile takeover bid for Qualcomm, which later fell to $117bn, was blocked because of fears of a loss of the country’s leadership in cellular technology. “

Despite sufficient funding and the willingness of the company to participate, scale is still important. “Some $40bn appears to have become a viable acquisition limit for the semiconductor industry because of the high value of large deals, the rise of protectionism among more countries and the increase in trade frictions.”¬†Lineback says,

“Geopolitical environments and trade wars are likely to continue to limit the size of semiconductor mergers and acquisitions. But Nvidia’s $40 billion deal violates that hypothetical ceiling. Nvidia’s deal with Arm not only affects key players in many areas of the IC industry, but also appears to be a test of today’s geopolitical restrictions on chip mergers and acquisitions. “

In China, there are also restrictions on shares in takeover deals. For a joint venture to be established, a non-local company would need to own 51% or more of the shares in a subsidiary of a Chinese partner company. “This transaction makes it significant for Arm to divest 51% of Arm China,” said IDC’s Rau. It was one of several deals that brought intellectual property to China. MIPS is open to China, and RISC-V is open to China. “

The semiconductor industry is entering a new phase.

It remains to be seen how the new acquisition will change the chip industry, but the slowdown in Moore’s Law, as well as the move of chip design towards a more heterogeneous direction and the driving force of processing and intelligence demand, are changing the dynamics of the chip industry.

“We seem to be entering a new phase in the semiconductor industry, often in the 1970s and 1980s, with large semiconductor companies that developed their own processor cores, EDA tools, and sometimes even processing devices.”¬†Codasip’s senior marketing director, Roddy Urquhart, said.

By the 1990s, that had been broken by companies such as Texas Instruments and Siemens Semiconductor, which were split in 1998, abandoning internal EDA tools in favour of commercial ones. Ip companies, including Arm, MIPS, ARC, and Tensilica, have been sparred over the same time period to provide alternatives to the internal kernel. By the year 2000, most companies in the world relied on the big three EDA companies and Arm to meet most of their design tools and IP needs. In the same time period, we have seen the emergence of pure wafer foundries and the growth of waferless semiconductor companies. With a stable business environment, global IC design has developed in many regions, especially in China and India. “

Recent geopolitical tensions have broken that stability. “Because China can’t use U.S. technologies, such as Android, some EDA tools, and so on, they will be forced to build their own ecosystems. Arm is considered to be a third-party company that is completely independent of its licensees, but that independence will be broken when it is acquired by Nvidia. In the processor world, RISC-V is a clear alternative to the company’s focus. This is also an opportunity for EDA companies based in neutral regions such as Germany or Canada. “

More acquisitions will allow the market to restructure in different regions, with the adoption of new technologies and the need to process more data in more places, but the pace is unclear.