UK gov’t triggers national security scrutiny of Nvidia-Arm deal

The UK government has intervened to trigger public interest scrutiny of chipmaker’s Nvidia’s planned to buy Arm Holdings.

The secretary of state for digital issues, Oliver Dowden, said today that the government wants to ensure that any national security implications of the semiconductor deal are explored.

Nvidia’s $40BN acquisition of UK-based Arm was announced last September but remains to be cleared by regulators.

The UK’s Competition and Markets Authority (CMA) began to solicit views on the proposed deal in January.

Domestic opposition to Nvidia’s plan has been swift, with one of the original Arm co-founders kicking off a campaign to ‘save Arm’ last year. Hermann Hauser warned that Arm’s acquisition by a U.S. entity would end its position as a company independent of U.S. interests — risking the U.K.’s economic sovereignty by surrendering its most powerful trade weapon.

The intervention by Department of Digital, Media, Culture and Sport (DCMS) — using statutory powers set out in the Enterprise Act 2002 — means the competition regulator has been instructed to begin a phase 1 investigation.

The CMA has a deadline of July 30 to submit its report to the secretary of state.

Commenting in a statement, Dowden said: “Following careful consideration of the proposed takeover of ARM, I have today issued an intervention notice on national security grounds. As a next step and to help me gather the relevant information, the UK’s independent competition authority will now prepare a report on the implications of the transaction, which will help inform any further decisions.”

“We want to support our thriving UK tech industry and welcome foreign investment but it is appropriate that we properly consider the national security implications of a transaction like this,” he added.

At the completion of the CMA’s phase 1 investigation Dowden will have an option to clear the deal, i.e. if no national security or competition concerns have been identified; or to clear it with remedies to address any identified concerns.

He could also refer the transaction for further scrutiny by instructing the CMA to carry out an in-depth phase 2 investigation.

After the phase 1 report has been submitted there is no set period when the secretary of state must make a decision on next steps — but DCMS notes that a decision should be made as soon as “reasonably practicable” to reduce uncertainty.

While Dowden’s intervention has been made on national security grounds, additional concerns have been raised about impact of an Nvidia take-over of Arm — specifically on U.K. jobs and on Arm’s open licensing model.

Nvidia sought to address those concerns last year, claiming it’s committed to Arm’s licensing model and pledging to expand the Cambridge, UK offices of Arm — saying it would create “a new global center of excellence in AI research” at the UK campus.

However it’s hard to see what commercial concessions could be offered to assuage concern over the ramifications of an Nvidia-owed Arm on the UK’s economic sovereignty. That’s because it’s a political risk, which would require a political solution to allay, such as at a treaty level — something which isn’t in Nvidia’s gift (alone) to give.

National security concerns are a rising operational risk for tech companies involved in the supply of cutting edge infrastructure, such as semiconductor design and next-gen networks — where a relative paucity of competitors not only limits market choice but amps up the political calculations.

Proposed mergers are one key flash point as market consolidation takes on an acute politico-economic dimension.

However tech companies’ operations are being more widely squeezed in the name of national security — such as, in recent years, the U.S. government’s attacks on China-based 5G infrastructure suppliers like Huawei, with former president Trump seeking to have the company barred from supplying next-gen networks not only within the U.S. but to national networks of Western allies.

Nor has (geo)political pressure been applied purely over key infrastructure companies in recent years; with Trump claiming a national security justification to try and shake down the Chinese-owned social networking company, TikTok — in another example that speaks to how tech tools are being coopted into wider geopolitical power-plays, fuelled by countries’ economic and political self-interest.

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