Qualcomm ready to invest in Arm if $40bn Nvidia deal collapses

·9 min read
Cristiano Amon - Mario Tama/Getty Images
Cristiano Amon - Mario Tama/Getty Images

The US technology giant Qualcomm has opened the door to a rival investment in Arm if the British microchip company's $40bn (£28bn) sale to Nvidia is blocked.

Cristiano Amon, Qualcomm’s incoming chief executive, told The Telegraph it would be prepared to buy a stake in Arm alongside a consortium of industry players if owner SoftBank were to float the company instead of selling it to Nvidia.

Nvidia hit back at the suggestion, saying an IPO would hold back Arm's development.

Qualcomm and companies including Google and Microsoft have raised concerns about Nvidia buying Arm, claiming the deal threatens the Cambridge-based company’s independence and would harm competition.

“If Arm has an independent future, I think you will find there is a lot of interest from a lot of the companies within the ecosystem, including Qualcomm, to invest in Arm,” Mr Amon said.

“If it moves out of SoftBank and it goes into a process of becoming a publicly-traded company, [with] a consortium of companies that invest, including many of its customers, I think those are great possibilities,” he said.

“We will definitely be open to it, and we have had discussions with other companies that feel the same way.” Industry sources said that other companies that have expressed concerns about the deal included Tesla and Amazon.

Arm, whose chip designs power billions of smartphones as well as an increasing number of connected cars and smart devices, was listed in London until 2016, when SoftBank paid £24bn for the company.

Last September, Nvidia announced a deal to buy the company, although the deal faces multiple competition investigations in the UK, US, the European Union and China.

Nvidia, which says it expects the acquisition to go through early next year, has pledged to maintain Arm’s neutral licensing model, but opponents say the deal would give Nvidia an unparalleled position in areas such as data centre chips.

“That’s the reason it’s a logical conclusion for us, and for many other companies, that to invest in a strong and independent Arm is probably the best for everyone,” Mr Amon said.

An Nvidia spokesperson said: "To grow and meet the demands of the AI era, Arm needs much more than an IPO. Arm needs an infusion of new technology that it can provide to Arm licensees everywhere, which is why we stepped up and agreed to buy Arm. Our technologies and Qualcomm’s are highly complementary - we’d welcome Qualcomm’s help in creating new technologies and products for the entire Arm ecosystem."

Nvidia recently filed the deal with Chinese regulators seeking approval from Beijing authorities. The US Federal Trade Commission has asked the companies’ customers to respond to the deal, while the UK’s Competition and Markets Authority is assessing the acquisition on national security grounds.

Microsoft and Google declined to comment.

Read on for our full interview with Qualcomm's incoming chief executive Cristiano Amon

A handful of companies are credited with bringing about the modern smartphone industry. Apple, through its iPhone; Samsung, which brought cheaper devices to users around the world; and Google, whose Android software powered them.

Another but perhaps lower-profile entry on that list is Qualcomm. The $150bn (£106bn) San Diego titan may not be a household name, but it has developed much of the technology behind the wireless broadband networks that deliver 3G and 4G internet connections.

Bosses are now betting big on a 5G revolution - hoping for a massive boost to growth as the technology’s potential for ultrafast internet expands from mobiles to almost every device in the modern home.

5G promises internet speeds up to 100 times faster than 4G networks, with more reliable connections. The technology has its share of sceptics who argue that the returns from such advances are marginal and that 5G is yet to demonstrate a compelling use case. Unsurprisingly, Qualcomm’s incoming chief executive Cristiano Amon is not one of them.

“When Qualcomm started developing 4G, everybody already had a phone,” he says.

“Most of the analysts were holding onto their BlackBerries and sending emails, saying ‘Who needs 100 [megabits] of data in a cellphone?’.

“When [4G] happened, we saw a smartphone revolution, it changed society.”

Amon, an engineer at heart who has spent 21 years at Qualcomm over two stints, takes charge from outgoing chief Steve Mollenkopf at what should be a turning point for the company. Sales of 5G handsets are expected to hit around 500m this year, more than double what they were last year.

The decline of Huawei, whose smartphone business has been crippled by Trump-era export controls, is also a boost to the company. Huawei was one of the few companies that made its own chips rather than buying them from Qualcomm.

If 4G made mobile internet useful, 5G is meant to make it ubiquitous - an always-on, reliable fabric that connects everything.

“That connectivity is going to be there no matter what, that’s very new,” Amon says.

“Unlike all the other ‘G’s’, 5G looks more like electricity. In the beginning you would talk about use cases with electricity, that it’s good for light, it’s good for powering an electric motor. We don’t talk about use cases anymore, it’s just there. That’s how we think about being connected.”

Cristiano Amon - Dan Tuffs/Telegraph
Cristiano Amon - Dan Tuffs/Telegraph

Another selling point is that 5G promises to move mobile networks beyond phones to almost anything. Qualcomm’s automotive revenues grew 40pc year-on-year in the last quarter, a reflection of the growing computerisation of cars, despite a chip shortage hitting production. Revenues from the internet of things - embedding chips and antennae in household appliances and manufacturing equipment, from kettles to an industrial robot - grew 71pc.

The development creates a path to enormous riches for Qualcomm if it can go from merely connecting people to connecting things.

“All of these growth businesses have the potential to be bigger than mobile,” says Amon.

That is not to say the company has failed to make hay from the rise of the personal phone.

Its technology is already so intertwined with modern mobile networks that every smartphone sold today involves paying a royalty to the company, even those that do not include its own mobile modems. Meanwhile, almost every non-Apple smartphone sold in the Western world uses a Qualcomm processing chip.

In other words, Qualcomm is difficult to avoid doing business with. That position has brought with it a slew of monopoly lawsuits and fines that has left the company resembling a legal department as much as a hub of innovation.

In 2017, it was sued in parallel by the fearsome duo of Apple and the US government - both of which claimed Qualcomm was exploiting a monopoly by charging device makers unfair fees and raising the price of phones. The same year, it was subject to a hostile takeover attempt from Singapore chipmaker Broadcom.

But ultimately Qualcomm prevailed on all three fronts. It settled with Apple, a truce that led the way to the first 5G iPhone last year. The US government’s case collapsed after an appeal, and Donald Trump blocked Broadcom’s proposed takeover on national security grounds.

Qualcomm’s shares have now risen by 58pc in the last year, amid optimism about a resurgent smartphone market and hopes that the worst of its legal challenges are behind it.

“Qualcomm has always been a company based in advanced technology, development and engineering” says Amon.

“In the middle of everything that was going on… we just relied on what we do best.”

There is still one pressing threat to the company’s hopes of victory in 5G.

The revolution it anticipates will be driven not just by faster internet speeds but by miniature processors designed by Arm, the British microchip company whose technology sits inside almost every device Qualcomm anticipates bringing online.

Arm is known as the “Switzerland of chips” for a famously neutral business model in which it licenses its technology to anybody who asks. That approach has persisted after the company was bought by Japan’s SoftBank.

But last year SoftBank agreed to sell the company to Nvidia, the Silicon Valley chip giant that competes against many of Arm’s customers. Opponents of the $40bn deal say Nvidia ownership would put Arm’s open licensing model under threat, and have called for regulators investigating the deal to block it.

“The Arm ecosystem is successful because it’s open,” Amon says.

He fears that Nvidia will use the company to turbocharge its own successful business developing artificial intelligence chips, for everything from high-powered data centres to the battery-powered devices that Arm runs on.

“They own artificial intelligence in the cloud, [this is] about leveraging the Arm ecosystem to become a gateway on the device,” Amon says.

What is so troubling about the deal, he says, is that it is unnecessary because Arm does not need Nvidia to rescue it. Last year, for example, an Arm-powered supercomputer was declared the world’s fastest for the first time. Apple switched to Arm-based chips in its computers. Nvidia announced its own Arm-based data centre chip before the deal has closed. Earlier this year Qualcomm itself paid $1.4bn to acquire Nuvia, a chipmaker founded by former Apple employees that uses Arm-based designs.

“Arm already won, and won everywhere,” says Amon.

“After the battle is won because of its independence, to say, ‘let’s make it better by taking that away’, doesn’t make any sense.

“We fail to see the benefit to the ecosystem. We only see damage.”

Nvidia CEO Jensen Huang - AP Photo/Chiang Ying-ying
Nvidia CEO Jensen Huang - AP Photo/Chiang Ying-ying

Nvidia has said it is confident of the deal getting past a phalanx of competition regulators, including in the UK where it is being investigated on national security grounds. It has also pledged to maintain Arm’s open model, which it says is the foundation of the company’s success.

If wartchogs are not convinced, however, Amon presents an alternative: Qualcomm, he says, would be among a number of big technology companies happy to invest in Arm if SoftBank were to return it to the stock market.

The option has also been proposed by Hermann Hauser, a co-founder of Arm's predecessor firm Acorn and investor in British chip company Graphcore, who has suggested the Government could also take a stake.

That would depend on competition authorities, who have been surveying Arm’s customers and Nvidia’s rivals for their thoughts on the deal. Qualcomm, which has its own regulatory battle scars, will no doubt be involved.

The company, and its new boss, would no doubt like to concentrate on building a 5G future. Before it can do that, it might have one more legal rumble on its hands.

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