Reports are claiming that the UK is considering blocking the sale of chip designer ARM to US-based Nvidia over national security concerns.

The news was originally reported by Bloomberg, citing people familiar with the matter.

On July 20th, the Competition and Markets Authority sent its Phase 1 Investigation report to the Secretary of State for Digital, Culture, Media and Sport (DCMS). The report examined whether the deal would be anti-competitive, along with passing on third-party concerns about potential national security issues.

According to Bloomberg, the report warns that the deal could have ramifications for the UK’s national security. While one source said that a deeper review into the merger may take place, another said that UK Government is currently inclined to reject the deal.

If the deal were to go ahead, the sources added that additional conditions would apply.

ARM is a major player in the global semiconductor chip industry, which is currently facing a major supply shortage. Its designs are widely used across the sector, helping it set standards for chips used in a variety of devices.

The $40-billion deal was originally struck in September last year. Even then, there were concerns about what the agreement meant for ARM’s UK operations.

At the time, MPs called for assurances that ARM’s headquarters would remain in the UK.

According to Nvidia, the deal aimed to combine its AI computing knowledge with ARM’s chip manufacturing capacity, helping drive innovation in the field.

Nvidia would take full control of the majority of ARM’s operations, with ARM’s parent company, Japan’s SoftBank retaining control of the company’s IoT Services Group.

In the weeks preceding the deal, SoftBank said that jobs at the IoT subsidiary’s Glasgow site would be cut.

While SoftBank took control of ARM in 2016, as a neutral holding company its business did not overlap with ARM’s. However, Nvidia and ARM are essentially in the same business.

While the exact concerns in the report are not currently known, the merger could see the two companies integrate and ARM’s operations moved out of the UK.

Nvidia has claimed that it is working alongside the UK Government to move through the regulatory process.

The Great Global Chip Shortage

The move comes as industries struggle against a global semiconductor shortage. Like most challenges since 2020, the Covid-19 pandemic is at the root of the problem.

With the world relying on a small number of companies in a handful of countries for chips, challenges from the coronavirus caused bottlenecks in the supply chain. Workers at plants were unable to go to work due to lockdowns, and what few chips were made were held up by restrictions at ports.

At the same time, the massive pivot to remote working and learning, along with increased e-commerce, led to a rise in demand of devices that use semiconductors.

The end result is a shortage of a component that underpins the modern digital economy, impacting hundreds of industries.

Recommended

• The DIGIT Deal Roundup Column | July 2021 Edition
• ‘Data Loch’ | Privacy concerns raised over medical research database
• University of Edinburgh celebrates record year for startup launches

This has prompted governments around the world in take action to secure their supply chains. With the biggest suppliers of chips coming from companies in the US, South Korea and Taiwan, Europe is in a particularly vulnerable position.

As such, many governments are looking to develop indigenous semiconductor capacity.

In the UK, the chip shortage has contributed to an almost 40% decline in care production in the first half of this year, holding back economic growth as the country looks to grow post-Covid.

Meanwhile, the UK’s biggest chip manufacturing plant, Newport Wafer Fab, is in the process of being sold to China’s Nexperia. Prime Minister Boris Johnson has called for an investigation into the sale.

Since building factories can take years, developing semiconductor capacity from scratch is an expensive and time-consuming process. At present, it is anyone’s guess when the shortage will end – Acer has previously said at least until the first half of 2022, while the CEO of STMicro warned the first half of 2023.