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Nvidia’s Arm acquisition could be targeted by Chinese regulators

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Nvidia CEO Jensen Huang wearing his usual leather jacket.

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LONDON – Regulators in China could be a major barrier in Nvidia’s attempt to buy U.K. chipmaker Arm from SoftBank for $40 billion, according to analysts.

The mega-deal, which would create the largest chip company in the West by market value and global reach, was announced at the start of September. But it is far from being home and dry, with multiple regulators able to weigh in including China’s Ministry of Commerce (MOFCOM) and China’s State Administration for Market Regulation (SAMR).

“Technically, Beijing can block the deal,” Abishur Prakash, a geopolitical specialist at the Center for Innovating the Future, a Toronto-based consulting firm, told CNBC by email.

It wouldn’t be the first time Chinese regulators have prevented a U.S. chip firm from buying a European player. In 2018, SAMR blocked Qualcomm’s attempt to buy Dutch chipmaker NXP.

Bill Ray, a senior director analyst at research firm Gartner, told CNBC by email that Chinese regulators “will seek to extract specific guarantees before granting approval.”

He added that “some of these guarantees may be beyond the ability of Nvidia to provide,” specifically calling out the ongoing provision of Arm’s intellectual property (IP) to Chinese businesses.

Ray believes Nvidia will likely try to assure Chinese regulators by saying Arm’s technology is British and that future investment in the U.K. will ensure it stays that way. But it’s not that straight forward.

“Provision to China should not be an issue.” he said. “However, this neglects the influence that the U.S. has on the U.K., and the ability of the U.S. administration to influence companies outside its obvious jurisdiction.”

Geoff Blaber, a vice president of research at analyst firm CCS Insight, said: “It should be no surprise that China is expected to be a high hurdle for regulatory clearance.”

“China’s tech industry has been built on Arm so it has a vested interest in the status quo, particularly when the proposed scenario is ownership by a U.S. company,” Blaber added. “Regulatory scrutiny is inevitable, and the ownership structure of Arm Technology China adds further complexity.”

MOFCOM, SAMR and the Chinese embassy in London did not immediately respond to CNBC’s request for comment. Nvidia declined to comment while a spokesperson for Arm said: “Nvidia, Arm and SoftBank are confident that all regulatory approvals will be secured.”

Britain’s tech hero

Arm is widely regarded as the jewel in the crown of the British tech industry. Its energy-efficient chip architectures are used in 95% of the world’s smartphones and 95% of the chips designed in China.

The Cambridge-headquartered firm has a joint venture called “Arm China” with Chinese private equity firm Hopu Investments. Arm China is headquartered in Shanghai, meaning China’s regulators will have the right to review the proposed Nvidia deal.

China’s chip industry has urged Beijing to investigate the deal, warning that it will hand the U.S. control over a key technology that is used in almost all of the world’s phones.

Zhu Jing, the vice-chairman of the Beijing Semiconductor Association, said a U.S. company could not be trusted with ownership of Arm.

“Look at how the U.S. is treating Huawei,” he told The Paper, a Chinese digital publication owned by the state, in September. “If Arm is acquired by a U.S. company, everyone will be worried.”

Lawmakers in Washington have been clamping down on Huawei for years, claiming the firm is a threat to national security. In May, the U.S. introduced new export controls on Huawei that are designed to restrict the company’s access to chips made with U.S. equipment. The following month, the U.S. included Huawei on a list of 20 Chinese firms that are allegedly owned or controlled by the Chinese military.

The Global Times, another state-owned newspaper, also urged Beijing to intervene. “The possibility that Arm could be politicized as a US technology weapon against China’s technology companies must be taken seriously,” an editorial warned around the same time.

Chinese chip designers, including Huawei’s HiSilicon chip design division, are worried about losing access to Arm’s IP after the Nvidia deal, according to The Financial Times. “Will it still find a way to provide us with IP after being acquired? I have to say I’m a bit worried,” one HiSilicon chip designer, who asked not to be named, reportedly said. Huawei declined to comment.

Not just China

The deal will also be scrutinized by governments and regulators in Europe, the U.S. and the U.K. Earlier this month, two U.K. tech investors said they expect the deal to be blocked by someone.

Opposition to the deal has been particularly strong in the U.K., with Arm co-founder Hermann Hauser leading the attack, calling it an “absolute disaster” for Cambridge, the U.K. and Europe. His primary concerns, which are shared by a handful of British lawmakers, are that Nvidia could relocate Arm’s headquarters or reduce the size of Arm’s workforce at some point in the future.

He’s also said Nvidia will “destroy” Arm’s business model, which involves licensing chip designs to around 500 other companies including several that compete directly with Nvidia, and that the deal will create a monopoly.

The chief executives of Nvidia and Arm spoke about the deal at last week’s Arm DevSummit.

Nvidia CEO Jensen Huang said he and Arm are confident the deal will go through. “And the reason for that is because as soon as we explain the rationale of the transaction and our plans, the regulators, around the world will realize that these are two complementary companies,” he said on Tuesday.

“We’re going to protect the business model, we’re going to create, continue to nurture this neutral, committed, consistent, trusted platform, so that our ecosystem can continue to flourish and even grow.”

Arm CEO Simon Segars said: “There’s a process to go through. It’s absolutely the right thing that the process is done thoroughly. But I think we’re going to get to the end of that. Everyone’s going to realize that this is a good thing for expanding and that we’ll get approval.”


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India could contribute up to 20% of Amazon’s growth in next 5 years

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SINGAPORE — India is a small contributor to Amazon’s total sales right now, but the country may become an important growth driver for the U.S. e-commerce giant, according to tech investor Gene Munster.

Amazon scored a victory on Sunday when the company won an injunction from  an arbitrator in Singapore to temporarily halt a significant deal between two major Indian retailers: Future Retail and Reliance Industries.

Future Retail, a subsidiary of Future Group, announced in August that it will be selling its businesses in retail, wholesale, and logistics to Reliance for $3.38 billion, including debt, Reuters reported. Amazon filed a legal suit against Future Retail, alleging that the Indian retailer breached contractual provisions it agreed to in a separate deal with the U.S. tech giant, according to the news agency.

Reliance — owned by India’s richest man, Mukesh Ambani — has been making headway into India’s vast e-commerce sector which is currently dominated by Amazon and Walmart-owned Flipkart.

Amazon has a growing presence in India. The e-commerce giant has invested billions into the South Asian nation.

“When you think about Amazon and their growth profile, (they) just had wicked growth in the last six months,” Munster, who is founder and managing partner at Loup Ventures, told CNBC’s “Squawk Box Asia” on Tuesday.

“But you think about a normalized growth profile, you think about the impact of India, this could be 15% to 20% of its growth over the next five years — India could be,” he said.

Amazon saw “a part of their opportunity – a really important growth driver – some of that window starting to close” as a result of the Reliance-Future deal, the investor said. 

Amazon has announced investments of at least $6 billion in India, including a $1 billion pledge in January to help small businesses in the country. The tech giant hopes to export $10 billion worth of India-made goods around the world by 2025. 

But the company also faces regulatory hurdles in India, including antitrust probes.

Still, the injunction from the Singapore arbitrator was not automatically enforceable in India and the order would have to be ratified by an Indian court, Reuters reported.

For its part, Reliance in a statement said it “intends to enforce its rights and complete the transaction in terms of the scheme and agreement with Future (Group) without any delay.”

Reliance may potentially win the dispute over Amazon because it has more political strength in India, according to Munster. He explained that the final outcome is unlikely to have any impact on Amazon’s share price as investors do not give sufficient credit to the opportunity in India as the market contributes very little to overall sales for the e-commerce company at the moment.

“So, I think the convenient response from investors will be ‘disappointment, but it’s only 3% of revenue.’ But I think it really misses the bigger point, which is to be successful in e-commerce in India, for a U.S. company to be successful, they must partner, especially given some of the local laws,” Munster said.


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Microsoft search ad revenue decline: bad news for Google?

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Sundar Pichai, chief executive officer of Google Inc., speaks during a news conference in New Delhi, India, on Wednesday, Jan. 4, 2017.

Anindito Mukheriee | Bloomberg | Getty Images

Microsoft is forecasting a continued slowdown in its search ad revenue, which could spell bad news for Google parent-company Alphabet, which reports its earnings on Thursday. 

Microsoft‘s latest results beat across the board, but the company saw a 10% year-over-year drop in search advertising revenue, and reported continued decrease for its guidance for the next quarter, according to its first fiscal quarter earnings it released Tuesday.

For the December quarter, Microsoft CFO Amy Hood said “in search excluding TAC, we expect revenue to decline in the mid to high single digit range” during a call with Microsoft investors Tuesday. That suggests a decline of 7% to 9%.

Google’s search engine is much more widely used than Microsoft’s Bing, but the companies have shown similar trends in search advertising revenues.

Last quarter, Microsoft’s search advertising revenue, excluding traffic acquisition costs, decreased 18% as customers spent less on ads.

That was a precursor to Alphabet reporting its first year-over-year quarterly revenue decline ever.

Specifically, Google’s Q2 revenue from search and other on-site ads (minus YouTube) dropped about 10% from the year-ago quarter, from $23.64 billion to $21.32 billion. (Revenue from YouTube advertisements, which it began breaking out separately this year, grew from $3.6 billion to $3.81 billion.)

Prior to that, Microsoft’s search advertising revenue, excluding traffic acquisition costs, increased 1% in the quarter that ended Mar. 31, which overlapped with the beginning of the pandemic.

That quarter, Alphabet reported a 9% increase in revenue from search and other (minus YouTube) revenue, which jumped from $22.54 billion in 2019 to $24.50 billion in 2020.


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Facebook political advertisers report problems after new ad deadline

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Facebook founder and CEO Mark Zuckerberg in 2013. (Photo by Justin Sullivan/Getty Images)

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Political advertisers say they’re having trouble with ads that were already approved before Facebook began its planned blackout period for new political ads leading up to the election. 

Facebook announced last month that it would not accept new political ads the week before the Nov. 3 election, starting on Tuesday, Oct. 27. Advertisers were able to submit and run new ads until midnight Pacific Time on Monday, and are allowed to run those ads leading up to the election as long as they received at least one impression before the deadline.

For instance, President Donald Trump’s campaign has pre-loaded ads saying that Trump was “still your president,” boasting about GDP figures that haven’t been released yet, and imploring people to “vote today” with graphics reading “Election Day is Today.” Facebook said it would be removing those “vote today” ads for being against policy.

However, other advertisers are complaining about glitches in Facebook’s system. Several told CNBC they previously approved ads — either those that had run and gotten impressions then paused, or those that had been running for weeks — began to appear to have violations overnight. Protocol previously reported on the issues Tuesday afternoon.

“We are in the closing days of the most important election in our nation’s history, so it is disturbing that our clients had their already approved and running Facebook ads shut off without warning overnight,” said Mark Jablonowski, managing partner and chief technology officer at DSPolitical, a targeted ad network for Democratic campaigns and progressive causes.

“This turn of events is hardly surprising,” Jablonowski said in an email to CNBC. “Facebook and other large platforms have pursued a headline-grabbing but ill-conceived strategy of banning ads from political campaigns rather than focusing their considerable resources on fighting the spread of demonstrably false organic content that could interfere with the election.”    

Maddie Kriger, Integrated Media Director at progressive advocacy organization and super PAC Priorities USA, said the organization had made sure its messaging would fall within Facebook’s policies — making an effort to avoid “time-bound” messages to avoid flouting policy. Facebook stopped some of its ads anyway.

Kriger said Priorities had its ads set up, approved and running impressions by Friday, pausing some of the ads they wanted to run closer to the election. She said the organization’s Facebook representative said the ads followed the rules. 

But as of 12:01 Pacific Time, she said the organization’s ads started being taken down for being in violation. She said this included hundreds of ads, both those that had been created and run impressions and then paused, as well as those that had been running for weeks with hundreds of thousands of impressions. 

“Even [with] accidental errors, an error like this has a huge impact on our program and our ability to communicate to voters,” she said. “It’s really unacceptable at this stage of the election. It’s just such high stakes that 12 hours in a week left situation is a real loss.”

Facebook director of product management Rob Leathern addressed the issues in a tweet Tuesday afternoon.

“We’re investigating the issues of some ads being paused incorrectly, and some advertisers having trouble making changes to their campaigns,” he wrote. “We’re working quickly on these fixes, and will share an update once they are resolved.”



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