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The semiconductor supply chain is now almost completely disaggregated ie everyone specialises in just a small part of the value chain. ARM’s speciality is in CP
by tokyojoe 5y ago
The semiconductor supply chain is now almost completely disaggregated ie everyone specialises in just a small part of the value chain. ARM’s speciality is in CPU design and it has carved out for itself the enviable position of being the defacto standard for mobile applications - almost every single phone on the planet has ARM processor(s) running it. And their products are in dozens of other end applications segments as well. These chips are embedded in System on Chip IC’s and manufactured by third party companies like TSMC and UMC etc to end customer specifications, like Apple or Samsung for example.
The problem with the original SoftBank deal, and now the Nvidia deal, is that these companies will simply hollow ARM out (slash R&D, cut staff etc) to pump up the target’s value, before flogging it off or breaking it up. The stock market doesn’t value synergies, although it is quite happy to punt this aspect when M&A deals are in the offing. Given its strategic position as the defacto standard for mobile comms, that’s a serious threat.
ARM also gives the UK strategic leverage in any trade negotiations. Would we knowingly allow Rolls-Royce Jet Engines to be flogged off? No. Ditto ARM.
So, I think this is the right policy and hopefully the government will see fit to step into other deals like this and block them.
I’ve been through a PE acquisition. We were stripped bare and bits sold off before finally getting our mojo back. I benefited handsomely but we were not the company we were before and the job losses in the process were huge. It will be no different with Nvidia’s proposed take over of ARM.
(disclaimer: I was a semiconductor executive in a global MNC).
- the_duke 5y agoYou apparently double-posted? https://news.ycombinator.com/item?id=26862687 https://news.ycombinator.com/item?id=26862687
- tokyojoe 5y agoYeah. Looks like that. :)
- discreteevent 5y agoSomehow, tokyojoe, I find it hard to picture you, as a former semiconductor executive, making two new accounts on HN to post the same thing twice. It's just not the kind of thing I imagine former semiconductor executives spend their days at.
- marktangotango 5y ago> these companies will simply hollow ARM out (slash R&D, cut staff etc) to pump up the target’s value, before flogging it off or breaking it up. What does "flogging it off" mean in this context?
- detaro 5y agosell something off quickly
- bregma 5y agoIt's a malapropism for "fobbed off", which means to trick someone into buying something of inferior quality or value.
- jonplackett 5y agoDon’t think that’s right. Flogging something means to sell it, usually in a careless kind of manner.
- jorvi 5y agoThis thread is the first time I've ever heard of 'flogging' meaning selling something off hurriedly. The predominant way I've seen it used is to refer to administering punishment via whipping.
- jonplackett 5y agoyeah it means that too, it's British slang. INFORMAL BRITISH sell or offer for sale. "he made a fortune flogging beads to hippies"
- azalemeth 5y agoThat is indeed the meaning of the verb "to flog". Like you would to a horse in the 17th century, to make it go faster. "Flogging off" goods to make them move faster is a relatively simple leap (and universal British slang).
- ENOTTY 5y agoCan you describe what you mean by disaggregated? From what I can tell, there seems to be increasing consolidation in the industry: * AMD -- Xilinx -- ATI * Nvidia -- ARM -- Mellanox * Intel -- Altera -- Habana/Nervana -- Mobileye
- tokyojoe 5y agoYou’re talking about M&A (market consolidation) and I am talking about the supply and value chain. Two completely different things. The supply/value chain is broken up into little chunks with specialists focusing on a narrow activity eg chip design or fabrication or assembly or test etc. There are a few specialists like AD and TI that are still vertically integrated to some extent eg design and fabs, but that’s because they have specialty analog processes for things like opamps , references and so forth. However, a lot of their assembly and test is sub contracted out. For digital devices and companies like ARM, very few still run fabs (semiconductor speak for ‘fabrication plant’) - they leave that to giant fab only companies like TSMC, UMC et al. How this works is the fabs run standard processes and companies design products to be produced using those processes - so by standardising, costs are reduced. A fab process takes 2-3 yrs and a few hundred million $ to develop. Samsung and Intel still have fabs doing predominantly digital, but they have the scale and heft to afford the $1-2 billion every 7 yrs to invest in new plants. There are few others though ( mainly in memory).
- LMYahooTFY 5y agoI think they mean the manufacturing supply chain, which supply AMD, Nvidia, and even Intel. e.g. TSMC <- ASML, and the raw materials providers
- alexhutcheson 5y agoIt seems surprising to assert that Nvidia would slash R&D after the acquisition, considering Nvidia’s demonstrated willingness to spend enormous amounts of money on R&D, even for speculative and risky products. For example, they funded the Project Denver/Carmel team for almost a decade, even though the resulting microarchitectures didn’t seem to have gained significant commercial traction. If this was a sale to a PE firm I think your predictions would be more likely, but Nvidia seems really unlikely to be a “slash costs and sell it for parts” type of buyer.
- my123 5y agoAnd are still funding that CPU design team, which is designing some upcoming products.
- alexhutcheson 5y agoDidn’t realize that - awesome to know. Looking forward to seeing their future announcements.
- foobarian 5y agoThe thing I don't get about these acquisitions is, if ARM was this awesome design shop owning essentially all mobile chipsets and then some, why did they need the money? Were they going broke? If so, then it seems like the right thing to do would be to nationalize. If not, was it just a leadership decision for purposes of expanding the company?
- zepto 5y ago> if ARM was this awesome design shop owning essentially all mobile chipsets and then some, why did they need the money? Were they going broke? It’s not the company that gets the money - it’s the owners. This transaction is about SoftBank’s balance sheet, not ARMs.
- foobarian 5y agoI was thinking more about the original sale. It's looking like it was just the board seeing dollar signs, coupled with a promise of a huge workforce expansion. [1] https://www.borntoengineer.com/britains-successful-technology-company-arm-sold-japans-softbank-24bn https://www.borntoengineer.com/britains-successful-technolog...
- CalChris 5y agoMoreover, if the UK had a strategic leverage objection why didn't they register that objection at that original sale to Softbank?
- zepto 5y agoCould it be that geopolitics has changed their position since then?
- foobarian 5y agoI'm no politician but that promise to double the local workforce in Cambridge definitely caught my eye as something that would play really well in that arena. Kind of like how the Foxconn plant got built in the United States.
- caslon 5y agoARM also gives the UK strategic leverage in any trade negotiations. Would we knowingly allow Rolls-Royce Jet Engines to be flogged off? No. Ditto ARM. Doesn't this/shouldn't this basically encourage countries like the United States to completely ignore intellectual property laws? If not, why not?
- AlphaSite 5y agoThe US has more to loose by people ignoring IP laws imo.
- happymellon 5y agoBecause then people would ignore their IP rules. Which would probably be pretty devastating for high profile things like Silicon Valley and Hollywood.
- caslon 5y agoPeople already do ignore US IP law. It's pretty much entirely ignored by the single other meaningful competitor in the world: China.
- happymellon 5y agoAnd the US is free is ignore Chinese IP if it wants to. But thats not what what we are talking about. This is UK IP.
- caslon 5y agoThe UK's production capabilities are more or less irrelevant. Why not just ignore it? It's not like they're going to suddenly become some massive economic force.
- jonplackett 5y agoIs there anything to stop SoftBank just moving the headquarters somewhere else and then selling? Or selling the IP to an overseas subsidiary, or some other way big Corps usually ignore what governments want them to do?
- vineyardmike 5y agoNo. Softbank is japanese, NVidia is American, ARM is british. Also, the UK can probs stop any transfer of ARM IP/Company/Etc. if they wanted (idk the laws tho).
- tw04 5y ago> these companies will simply hollow ARM out (slash R&D, cut staff etc) to pump up the target’s value, before flogging it off or breaking it up. That's a very real concern with Softbank (and why I questioned why regulators were allowing the acquisition in the first place). I don't think you can be any further from the mark implying that's Nvidia's plan. Nvidia wants ARM to flourish, they would have no interest in killing it or selling it off once acquired. They already use ARM tech in their Tegra CPUs, and in the "Smart" NICs they acquired with Mellanox. Additionally they pre-announced a datacenter focused ARM chip just last week. They would have absolutely nothing to gain and a ton to lose if they were to kill off ARM or gut the technical talent.
- robert_foss 5y agoARM can't flourish under Nvidia, which customer would prefer to buy IP from a potential competitor rather than from a neutral provider. The ecosystem business model that defines Arm simply doesn't have any space for them being perceived as biased this way or that way.
- tw04 5y ago>ARM can't flourish under Nvidia, which vendor would prefer to buy IP from direct competitor rather than from a neutral provider. I would imagine plenty. Take a look at the list of vendors that sell Nvidia GPUs despite the fact that Nvidia sells directly into the market. >The ecosystem business model that defines Arm simply doesn't have any space for them being perceived as biased this way or that way. I don't know, Intel's recent announcement that they're going to start licensing their IP directly contradicts that. I don't think Intel would waste what will likely be a fairly large amount of money spinning up a new business unit without first doing some market research and ensuring there's demand for it.
- smachiz 5y agoWhen you're thirsty, you buy from the person selling water. I don't think you'll find a lot of love lost between the OXMs and nvidia. I'm sure they would love more competitors in the space. We have people licensing Arm and building interesting CPUs (Ampere). I'm not sure that the NVIDIA acquisition would be good for the market or for Arm.
- willvarfar 5y ago> Would we knowingly allow Rolls-Royce Jet Engines to be flogged off? Not quite a flogging off, but the MiG 15 engine was a copy of the Rolls Royce Nene engine which a soviet trade delegation won in a bet on a game of billiards.
- Robotbeat 5y agoWait, what?
- deleted 5y ago[deleted]
- macintux 5y agohttps://www.wearethemighty.com/mighty-history/ussr-won-jet-engine-bet/ https://www.wearethemighty.com/mighty-history/ussr-won-jet-e...
- ClumsyPilot 5y agoAmazing, i never knew that. Admittedly, that was 1946, before the cold war really began
- ksec 5y ago>is that these companies will simply hollow ARM out (slash R&D, cut staff etc) to pump up the target’s value, before flogging it off or breaking it up. Given that you were a semiconductor executive in a global MNC, may I ask, How? Now correct me if I am wrong. The whole ARM business model was built on the foundation they dont and will not / could not squeeze you out once they dominate. They are British, not acting like some Giant Tech companies you have across the pond. You also get the option to buy perpetual ARM license in various form, including ISA and Design in case you are not comfortable. i.e There is very little they could do to pump up their value. Cutting Opex doesn't do that. The whole business model is so well designed to the point it doesn't make sense not to sell to SoftBank when they put in that ridiculously high offer. (Purely from a Financial perspective) As with the case of TSMC, both ARM and TSMC were not supposed to be in the spotlight. They are the backend enabler of the industry. And they want their customer to get the attention and focus, while they are doing the old boring work. All of that changed when Apple jumped into the picture.
- lend000 5y agoI may be ignorant, but aren't ARM designed CPU's (like the A78) miles behind their most advanced licensees, like Apple with the M1/A12? Isn't most of their value just riding on licenses of their established instruction set?
- julienb_sea 5y ago> these companies will simply hollow ARM out (slash R&D, cut staff etc) to pump up the target’s value, before flogging it off or breaking it up This seems dramatically more likely from a generic investment consortium like SoftBank versus an actual chip-focused R&D organization like nvidia. I don't see how this is possibly a counterargument for sale to nvidia.
- volta83 5y agoYou claim that it is in the interest of an ARM CPU vendor that wants to buy ARM to cut ARM's R&D and sell it for parts after buying it. What's the rationale of this claim? (you don't say) I'd expected that ARM CPU vendors are interested in having "great" CPUs to sell and having as big of an ecosystem as possible. So my expectation would be that NVIDIA would significantly increas - not cut - ARM's R&D budget, and will significantly invest in the ARM platform. On top of this, NVIDIA apparently is trying to cut its reliance on Intel and AMD CPUs. I don't see how cutting ARM's R&D budget and stripping it for parts would allow them to reach that goal. This is the opposite of what you claim.
- tokyojoe 5y agoNvidia don’t need ARM in-house to be successful. They already are. They are overvalued and have a huge mkt cap and are looking to make an acquisition as a result. Ultimately, the stock market will decide what Nvidia does with ARM. The pressure to deliver Q on Q improvements is immense. And re slashing and burning, it happens all the time in semiconductors. When you make an M&A, the first thing you look for are cost reduction opportunities because that’s one of the P&L drivers which in turn drives stock price (supply shortages notwithstanding). As for synergies (the other big thing in an M&A) I just don’t see any. If ARM goes to Nvidia it will be a disaster for ARM. Herman Hauser, ARM’s founder (now retired) has said as much. He was very unhappy about the SoftBank deal as well.
- volta83 5y ago> Nvidia don’t need ARM in-house to be successful. They already are. You keep saying this, but this still does not match the reality that Nvidia has bid a lot of money for ARM. So there must be something "in" for them that makes it worth it for them to pay 40 billion dollars. The claim that this deal will be a disaster for ARM is IMO equivalent to saying that "killing ARM is worth 40 billion dollars to NVIDIA". That makes no sense, at all. The only reason ARM is worth 40 billion dollars is because of its users. If ARM loses its user base, it is worth as much as MIPS or OpenPOWER (aka 0 dollars). Also, if ARM loses its user base, NVIDIA ARM CPUs become worthless. I have a hard time believing that, after investing 15 years of R&D into their own ARM CPUs and finally shipping serious ARM CPUs to market, NVIDIA would pay 40 billions to make that all worthless.