Huawei, other Chinese tech firms are said to seek curbs on Nvidia’s US$40 billion Arm acquisition

Chinese technology companies including Huawei Technologies have expressed strong concerns to local regulators about Nvidia Corp’s proposed acquisition of chip designer Arm, people familiar with the matter said, potentially jeopardising the US$40 billion deal.

Several of the country’s most influential tech firms have been lobbying the State Administration for Market Regulation (SAMR) to either reject the transaction or impose conditions to ensure their access to Arm technology, the people said.

Chief among their concerns is that Nvidia may force the British firm to cut off Chinese clients, they said, asking not to be identified discussing private deliberations. It is feared that Arm – whose semiconductor designs and architecture are central to most of the world’s electronics, from smartphones to supercomputers – will become yet another pawn in the struggle for tech supremacy between the US and China.

Nvidia is buying Arm from Japan’s SoftBank Group Corp, bringing it under American jurisdiction and theoretically threatening the British company’s cherished status as a neutral party in the semiconductor industry.

China has more reason to block Nvidia’s Arm deal than approve it, analysts say

Any review of the deal in Beijing is likely to be coloured by what it perceives as growing US attempts to contain China’s largest technology companies. It has the power to approve the deal because China is by far the world’s largest consumer of semiconductors, importing about US$300 billion worth of chips annually.

That dependence on foreign silicon may convince regulators in China to try and wring major concessions from Nvidia to preserve the Arm relationship – for instance, by keeping the business independent and separate.

“I doubt why China would make it easy, since allowing Nvidia to take over Arm could worsen Huawei’s access to the UK company’s chip design,” Bloomberg Intelligence analyst Anthea Lai said. Arm designs are fundamental to a plethora of Huawei’s products, including its Kirin smartphone processors, Kunpeng server chips and Ascend for artificial intelligence applications.

A representative of Shenzhen-based Huawei, the world’s largest telecommunications equipment maker and China’s biggest smartphone vendor, declined to comment. The SAMR did not respond to calls and a faxed request for comment.

Nvidia representatives pointed to remarks this month from chief executive Jensen Huang, who expressed confidence the deal will pass muster.

“As soon as we explain the rationale of the transaction and our plans, the regulators around the world will realise that these are two complementary companies,” Huang said at Arm’s developer conference. “The two companies being complementary when combined will create new innovations, which is good for the market.”

Nvidia’s record deal to buy Arm was always expected to encounter major hurdles from regulators in countries sparring over trade, as well as customers concerned the transaction will limit competition and unfairly favour Arm’s future owner.

The SAMR has yet to view a formal application for approval, but the opposition in China is likely to be fiercest given Chinese tech firms’ reliance on American technology at a time of mounting US hostility. Beijing’s authority has proven fatal for at least one previous chip deal: Qualcomm gave up its pursuit of NXP Semiconductors in 2018 after failing to win approval from China over more than 21 months.

“Clearance in China will likely be the biggest challenge and take the most time,” wrote Bloomberg Intelligence analysts Jennifer Rie and Aitor Ortiz in a report.

“Because China’s government could use Nvidia’s deal approval as a pawn in its trade conflicts with the US, as some believe it did with Qualcomm-NXP, it’s difficult to predict yet whether the purchase will clear there,” the analysts said. “Still, the ability to impose conditions allows China to extract advantageous licensing terms for Chinese companies, which may be viewed as the better route.”

China has determined it must build its own world-class semiconductor industry, given rising tensions with the US administration of Donald Trump. That goal is unlikely to be affected by the American elections in November, although the outcome may change the dynamics between the two countries and by extension the Arm review.

Nvidia is a major provider of processors for computers and high-end computing, pitting it against players from Intel Corp to Qualcomm and Huawei. Arm’s designs and instruction set – the code used by chips to communicate with software – are an integral element of smartphones, self-driving cars and billions of sensors. These are also growing more essential for servers and laptops.

The Cambridge-based company has thrived on its neutrality as the Switzerland of the chip industry: it licenses technology to hundreds of companies, competing with none of them. While the Nvidia acquisition threatens that, executives have argued it is in their best interest to maintain Arm’s neutrality to avoid alienating potential customers.

The deal still needs signoffs from China, Britain, the European Union and the US, a process that often requires government agencies to solicit or be open to comment from customers and competitors. Nvidia and Arm have said they are confident they shall get through, it but it may take as long as 18 months to secure the necessary approvals.