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Arm faces decline and cuts without $40bn Nvidia deal, watchdogs told

·2 min read
Arm logo - AFP
Arm logo - AFP

The British microchip company Arm is falling behind rivals and struggling to gain a foothold in crucial new markets, according to evidence gathered by Nvidia as the US tech titan seeks secure to support for a $40bn (£29bn) takeover.

Research commissioned by Nvidia claims that Arm is “stuck in the mud” and would be unable to fund the major investments needed to compete against American rivals if the acquisition is blocked and it is forced into a Plan B of going public.

The report, by chip industry analyst Future Horizons, said that years of misplaced investment under SoftBank, Arm’s current owner, mean that the British company is struggling to catch up in areas such as data centres and connected cars as its money-spinning smartphone business reaches saturation point.

Future Horizons said: “With stagnant revenues and no profits, time is not in Arm’s favour and funding the required increased levels of R&D spending will clearly be a business and financial leap of faith.

“Arm does not have the financial firepower to self-fund this from revenues.”

US technology business Nvidia and has filed the report with competition regulators as part of its attempts to convince authorities to approve the acquisition.

The deal faces opposition from Nvidia’s rivals, which have raised concerns that it could jeopardise Arm’s open model and claim that the company could thrive if it were floated.

Arm, whose chip designs feature in billions of smartphones and other devices, was taken off the London Stock Exchange in 2016 when SoftBank paid £24bn for the company in an opportunistic raid after after the pound fell following the Brexit vote.

Nvidia announced it had agreed to buy Arm last September, but the deal faces a regulatory gauntlet and must be cleared by competition authorities in the UK, EU, US and China. Arm has warned in recent weeks that blocking the deal could force it to cut investment.

Although the Future Horizons report is presented as an independent analysis, Nvidia's submission of it to regulators is its strongest endorsement yet of the argument that Arm will flounder without its protection.

It said that Arm has enjoyed little success from a push into the “internet of things” despite hiring thousands of employees.

Future Horizons said: “SoftBank threw too much money into the wrong business areas that were not going to make money in the short term, if at all.

“Little surprise Arm is not performing well and SoftBank has not made a good return on its investment.”

The report claims that a flotation would force Arm to cut investments to pursue profits, thus falling further behind rivals.

The UK’s Competition and Markets Authority has recently handed the results of its initial investigation into the deal to Oliver Dowden, the Culture Secretary. Mr Dowden is due to decide on whether to refer the deal for further investigation.