Arm CEO Denounces IPO Chatter, Says NVIDIA Acquisition Is Critical Path Forward

There were a number of interesting developments regarding NVIDIA’s potential $40B acquisition of Arm over the past couple of weeks. High-ranking executives from three of Arm’s key chip partners – namely MediaTek, Marvell and Broadcom – all came out in favor of the deal, citing similar reasons for support. To summarize, the execs claimed that investments by NVIDIA, in conjunction with the company’s deep expertise in graphics processors (GPUs) and artificial intelligence (AI), would ultimately benefit Arm and bolster the entire chip industry that relies on Arm’s IP ecosystem. They also went on record affirming their belief that NVIDIA would continue Arm’s open licensing model and not limit partner access to bleeding-edge Arm technology.

It is no surprise that multiple industry heavyweights have spoken out about the potential deal. NVIDIA’s acquisition of Arm could have far reaching implications that resonate throughout the technology industry, due to the pervasiveness of Arm’s IP and the company’s current business model, which licenses core processor architecture innovations to many chip partners. Arm technology is quite literally everywhere, from cellphones to cars, industrial equipment, the IoT, and the data center.

Arm CEO Says NVIDIA Is The Way, Not IPO

However, there are some players in the space that aren’t quite as keen on NVIDIA’s plans. Some recent chatter also suggested that there is an opportunity for Softbank, the current Japanese owner of Arm, to consider an IPO option. In lieu of NVIDIA’s acquisition, an IPO could allow some of Arm’s partners to directly invest in the company, to help solidify its financial positions and maintain the status quo. Simon Segars, the current CEO of Arm Holdings plc, however, took to the company’s blog today to quash the IPO idea and reaffirm his support for the NVIDIA acquisition, stating that it was essentially the only viable path forward.

Segars made a number of assertions, which seem to make sense in the current climate. With the rapid pace of innovation and advancement in the machine learning (ML) and artificial intelligence (AI) space, a straightforward cash infusion from an IPO isn’t ideal and doesn’t cater to Arm’s unique needs. Segars asserts that Arm would benefit significantly more by partnering with a leader in the AI field, which is exactly what NVIDIA is, and that NVIDIA’s expertise, in conjunction with the cash infusion that would come by way of the $40 billion acquisition, is the best path forward.

“Now is the time for us to take our scale to the next level to address the technology challenges ahead. We contemplated an IPO but determined that the pressure to deliver short-term revenue growth and profitability would suffocate our ability to invest, expand, move fast and innovate. Combining with NVIDIA will give us the scale, resources and agility needed to maximize the opportunities ahead. This deal is the best opportunity for Arm and our customers and will enable the UK to be a meaningful industry player in the age of AI,” noted Segars in his post this morning.

Arm Chief Underscores Commitment To Investment In The UK

It is also worth noting that Softbank considered an Arm IPO last year, but ultimately decided that engaging with NVIDIA was the better move. Further, with respect to the notion that an NVIDIA acquisition would be detrimental to jobs and economic growth in the UK tech industry, Segars firmly insists that NVIDIA “will not siphon investment away from the UK,” rather it will invest specifically in the expansion of Arm’s Cambridge headquarters to help build a “world-class AI research facility,” at the center of which will be one of the world’s most powerful Arm-powered supercomputers for leading scientists, engineers and researchers to harness for the evolution of AI, which is certainly one of the most critical technology growth areas of our time.

Further, in an interview with the Telegraph, Segars goes on to suggest that an IPO would be the “worst place to go” suggesting Arm would need to cut costs after its long-term investment in staffing. “We’ve got over 6,400 people today, that is significantly higher than what it was when we were acquired [by SoftBank], and our profitability is very, very low,” Segars notes. In fact, this statement suggests maybe, if the acquisition isn’t approved, Arm may actually have to trim head count.

The Arm Chief continues with reassurances that both Arm and NVIDIA are committed to maintaining the company’s open licensing model, noting that it’s an “economic and commercial necessity,” which makes sense as well. Arm’s entire business model is centered around partner adoption and implementation of its core IP. If the combined entity moved to close this off in any significant way, it would be like biting off its nose to spite its face.

There’s a bit more road ahead to travel with the regulatory approval process in any potential NVIDIA-Arm acquisition deal, but there’s one thing for certain and it’s that Arm’s executive leadership is firmly behind the acquisition and truly believes NVIDIA is its best partner moving forward, not only for its massive $40 billion dollar investment, which is the biggest the semiconductor industry has ever seen, but for the strategic synergies that NVIDIA brings to the table for Arm. When it comes to AI and the breakneck pace of innovation that the technology industry in general is currently marching towards, we’re bound to have at least a couple of these tectonic shift-like events like this. You learn to be surprised by almost nothing.