How NVIDIA Will Try to Maintain Arm Neutrality

Last month, NVIDIA (NVDA 0.80%) announced that it would acquire chip designer Arm from Softbank in a massive $40 billion deal that could reshape the mobile chip industry. Since Arm's chip architecture powers over 95% of all smartphones, and Arm's neutrality is key to its unique place in the mobile value chain, there are concerns that NVIDIA could end up undermining that neutrality since it competes with many of Arm's customers.

Here's how NVIDIA plans to address those concerns.

Data centers are now NVIDIA's most important market. Image source: Getty Images.

Setting up a firewall

Reuters reported this week that Arm will erect internal firewalls that will limit NVIDIA's access to confidential customer information, including long-term product road maps.

Due to the long development times necessary to produce state-of-the-art chips, Arm collaborates with licensing customers for years and is privy to information that could be competitively sensitive if NVIDIA were to obtain access to it. Customers also provide Arm with detailed forecasts in order to calculate royalty payments, according to the report. Arm charges royalties on a per-chip basis, so licensing customers must report unit volumes to the semiconductor company.

"We are going to keep the firewalls up between the two companies relative to confidentiality, and we're not going to give any early access to Nvidia," Arm exec Rene Haas told the outlet. However, NVIDIA would still need access to some of Arm's data for financial reporting purposes, complicating the logistics around information sharing.

NVIDIA has already committed to maintaining Arm's open-licensing model, but critics are going to want a detailed plan for preserving Arm's neutrality. The acquisition is expected to receive intense scrutiny from lawmakers and antitrust regulators in multiple markets where regulatory approval is required.

The stock has tripled over the past year as investors cheer the booming data center business. Data centers have been increasingly leveraging graphics processing units (GPUs) like NVIDIA's to power artificial intelligence (AI) workloads. In a symbolic milestone regarding that trend, NVIDIA's data center revenue narrowly edged past gaming, which has long been NVIDIA's core market, for the first time ever last quarter.

Data source: SEC filings. 

Note that data center revenue includes Mellanox, the networking-equipment supplier that NVIDIA acquired in April. Still, the data center is incredibly important to NVIDIA's future growth, and the company will be keenly interested in what its Arm-based rivals have in the pipeline. Arm customers that have been targeting the data center market include Ampere, AMD, and Marvell, among others.

Will a firewall structure appease regulators?