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FTC sues Nvidia to block $40B Arm deal, calling it the largest ever semiconductor chip merger

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The Federal Trade Commission on Thursday sued graphics card giant Nvidia (NVDA) to block its proposed acquisition of Arm.

"The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies,” FTC Bureau of Competition Director Holly Vedova said in a release.

"This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals," Vedova added.

An Nvidia spokesperson responded to the suit saying: "As we move into this next step in the FTC process, we will continue to work to demonstrate that this transaction will benefit the industry and promote competition."

The company's stock was up slightly after the news.

Nvidia announced its plans to acquire U.K-based Arm from SoftBank in September 2020 in a deal valued at $40 billion. At the time Nvidia CEO Jensen Huang said the move would have "tremendous benefits for both companies, our customers, and the industry."

But the deal has faced criticism from both international regulators and industry heavyweights. The U.K.'s Competition and Markets Authority is in the midst of an in-depth probe of the acquisition to determine its potential antitrust and national security concerns. 

Jensen Huang, CEO of Nvidia, pauses at his keynote address at CES in Las Vegas, Nevada, U.S. January 7, 2018. REUTERS/Rick Wilking
Jensen Huang, CEO of Nvidia, pauses at his keynote address at CES in Las Vegas, Nevada, U.S. January 7, 2018. REUTERS/Rick Wilking

Arm is considered a kind of neutral "Switzerland" in the tech industry. It provides chip designs and software to a litany of big-name firms including the likes of Qualcomm (QCOM), Microsoft (MSFT), Google (GOOG, GOOGL), Intel (INTC), Samsung, and Nvidia.

The FTC may believe the Nvidia deal would no longer allow Arm to act as a neutral third party, and could cut off competing companies from Arm's all-important designs. According to Bloomberg, Google, Microsoft, and Qualcomm have already lodged their complaints about the potential deal with antitrust regulators. Nvidia, for its part, has said that it will maintain Arm’s neutrality.

In an interview with Yahoo Finance, Huang said Nvidia could help Arm's R&D capabilities.

"The benefit of Arm being part of Nvidia is that we could accelerate their R&D scale,” he said. “Arm, as you know, are quite successful in mobile devices. But we could help them be much more successful in all other areas of computing.”

An administrative trial for the suit is scheduled for May 10, 2021.

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