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Laurie Clarke

Reporter

Arm co-founder: Nvidia sale is because Softbank over-invested in firm

Co-founder and ex-president of Arm Holdings Tudor Brown says that SoftBank’s projected sale of the chip company to Nvidia is the result of a bungled business strategy that saw the fund throw too much money at Arm and prioritise the wrong business areas.

The Cambridge-based company was bought by SoftBank four years ago for $32 billion. But flatlining revenue growth at Arm and a recent rocky period at SoftBank’s Vision Fund mean it’s now in talks to sell Arm to American computing firm Nvidia for $32 billion, according to the Financial Times.

“In my opinion, they put too much money into it, spent money on things that clearly – in my opinion – weren’t going make money in the short term, and now, suddenly, they’re saying, ‘Oh, dear me, this company isn’t performing very well’,” says Brown.

He added that “[SoftBank] invested too heavily […], threw too much money at it and haven’t got a good return as a result.”

Brown co-founded the Cambridge-based company in 1983, serving as its chief technology officer, chief operating officer and president before calling time in 2012.

After purchasing Arm, SoftBank attempted to diversify its core semiconductor-IP business model by pushing an Internet of Things (IoT)-driven vertical, hailing the acquisition as a “paradigm shift” for the Vision Fund and hiring an additional 2,000 Arm employees. But Arm’s IoT business failed to take off, and two of its IoT-services units have now been broken off into new entities that will be owned and operated by SoftBank.

An Nvidia sale isn’t certain, and Softbank’s founder Masayoshi Son has said that an Arm IPO before 2023 is another potential option for the company. According to the FT, SoftBank is currently focused on securing cash, following a rough first quarter where the company chalked up a historic loss. (It has now rebounded somewhat.)

Arm’s core business designing microprocessors and other computer chips for smartphones and other devices is still thriving. More than 90 per cent of all smartphone chips are based on Arm designs, and it is the highest valued technology company in the UK. But soon it could be owned by US multinational technology company Nvidia.

Brown laments the potential purchase, saying that it would fundamentally clash with Arm’s underlying business model. Because the firm designs technology that is sold or licensed to a great number of companies, Arm’s business model requires it remaining on good terms with “an unholy clan of competitors,” according to Brown.

Brown says Nvidia or any other semiconductor company owning Arm is “immediately going to upset that balance and make it very, very difficult for other companies to feel that they have equal access to the technology”.

Brown says he can’t imagine why a company would want to buy Arm if it wasn’t seeking to give itself an unfair advantage such as “early access” or to “deprive the other guys from having whatever innovations were to take place”. 

There is widespread disgruntlement that the original sale of Arm to SoftBank, and now potentially to Nvidia, represents a failing on the part of the UK government. When SoftBank bought Arm, it agreed to conditions such as retaining manufacturing in the UK. In the case of the potential Nvidia sale, there won’t necessarily be the same guarantee.

Another Arm co-founder, Hermann Hauser, told the BBC that the UK government should intervene to help the firm go public and remain an independent British company, although he clarified that he didn’t mean in terms of stumping up the cash for the deal.

Shadow minister for digital, science and technology Chi Onwurah said in a statement to NS Tech: “It is vital the UK maintains capability in key strategic areas, and Cambridge-based ARM Holdings is a major technology and telecommunications asset. 

“Yet while Ministers recently pushed through a questionable £400 million deal for Oneweb against the advice of civil servants, they are now turning a blind eye to the negotiations for a US takeover of ARM which could deeply damage the company’s prospects.

“The government must stop paying lip service to an industrial strategy, and actually take steps to preserve and grow this country’s industrial strengths – lest we fall behind our competitors for good.” 

But Brown points out that it’s a little late for government intervention, saying “they should have done that four years ago” when the company was first sold to SoftBank. At the time, the acquisition was hailed as a vote of confidence in post-Brexit Britain.

At the time of publishing, SoftBank has not responded to a request for comment.