2007 - 2022

Boris Sells the Family Silver

THE big economic news this week was the sale of Cambridge-based chip designer ARM to the US tech giant with the unpronounceable name, Nvidia.  The deal cost Nvidia $40bn in cash and shares. As a result, the jewel in the crown of the UK’s computer industry is now owned by a company headquartered in Santa Clara, California.
But the implications go far beyond that.  This deal is going to embroil the UK directly in America’s Tech Wars with China.  Which means ARM is about to become a hostage in the increasingly acrimonious trade talks between Boris and the Whitehouse.

For now, Nvidia is being all sweetness and light.  Head honcho Jensen Huang told the media: “We want to grow ARM and make it become even greater.” He said ARM would create more jobs at its facilities in Belfast, Manchester and Warwick and there would be a new artificial intelligence research centre in Cambridge.  Placated, the Tory Government made appropriate noises about protecting British economic interests but otherwise accepted the fait accompli.
Others are not taking the news so calmly.  The Labour Party has shed its normal somnambulant approach and called for the deal to be blocked – or at least have some conditions attached, such as a legal commitment to protecting jobs at ARM.  This has been backed by Prospect, the trades union covering tech workers in the UK.
Most interesting of all, opposition to the take-over has been voiced by ARM’s founder, Austrian-born, serial entrepreneur Hermann Hauser. Should the take-over go ahead, Hauser has also called for ARM to be exempted from regulations which give the White House powers over the sale of products containing American technology.  Otherwise the Yanks might stop the sale of ARM products to China.  Around 20% of ARM’s current revenues come from China.  The Chinese media has already begun to worry about being cut off from ARM computer chips.
What exactly does ARM make?  ARM designs the architecture for the chips used in almost every mobile phone in the world, from the iPhone to Android devices.  That’s a lot of phones.
ARM stands for Advanced RISC Machine, and RISC stands for “reduced instruction set computing”.  Decoded, we are talking about putting a mini, self-contained computer on a microchip. Essentially, this lets a device do things faster.  It is now the gateway to everything involved with sifting big data sets in real time, otherwise known as Artificial Intelligence (AI).
The ARM boys and girls in Cambridge at the forefront of the global AI revolution, which includes data mining, driverless cars, facial recognition technology, and crypto-currency mining. In particular, ARM has been developing chips for the so-called “internet of things”, linking everything that moves in a 5G-connected universe.  Which, of course is why everyone and their uncle wants a piece of the company. And why the Americans are so keen to block China’s access to ARM products.
Amazingly, ARM started out as a tiny firm called Acorn back in the 1980s, making widgets for the famous BBC micro-computer.  ARM represents practically the only home-grown British (never mind European) computer success story.
Desperate for investment cash to develop tech for the 5G future, ARM’s Chief Exec Simon Segars did a deal with a weird and super rich Japanese private equity and technology firm called SoftBank, back in 2016.  With the help of SoftBank, ARM went private. In total, the deal cost SoftBank a cool $32bn in cash.  The marriage with SoftBank was designed to protect ARM from US predators and give it access to the Japanese company’s deep pockets.  Unfortunately, the dream turned sour very quickly.
SoftBank is run by loonies with access to vast sums of money, much of it from Saudi. SoftBank basically started buying up tech companies wholesale, betting that one of them was bound to become the next Apple or Google. The outcome was obvious: SoftBank paid out too much (for Uber, amongst others) and started to run out of cash. Meantime, companies SoftBank had acquired, such as ARM, were neglected.  Result: SoftBank has done a reverse ferret and is selling off stuff to acquire cash. Hence it is selling ARM.
(This folks, is how global capitalism really work. It is a vast exercise in financial speculation. The next time you hear some mad libertarian tell you the state can’t pick winners and we should put our lives in the hands of hard-headed private investors, feel free to laugh out loud.)
As SoftBank bought ARM for £32bn and is selling it for $40bn four years later, it has made a turn on the deal.  On closer inspection, though, SoftBank’s gain is a bit more qualified.  Nvidia is paying for ARM with $12bn in cash and $28bn in its own shares (invented for the purpose). This means two things.  First, Nvidia is actually getting ARM for a cash song. And second, because it has got ARM on the cheap, Nvidia has no real incentive to retain ARM’s operations in the UK once it has its greedy hands on the British technology.  It’s goodbye ARM.
What about Nvidia?  The company started out making graphics cards for computer games. Gaming still accounts for a half of its sales.  Indeed, revenues have mushroomed during the COVID-19 lockdown, which is where Nvidia got the cash to buy ARM.
In addition, the Trump administration printing money to drive the US stock market into crazy heights, has had a spectacular impact on the valuation of Nvidia. Back in 2016, Nvidia had a market value similar to that of ARM.  But the soaring US stock market (an entirely artificial creation) has boosted the share price of Nvidia into the stratosphere.  The company now has a market value of circa $300bn – 10 times the amount SoftBank paid in cash for Arm.
Nvidia is using its insane share price to go on a buying spree, to make itself the dominant chip maker on the planet.  In fact, this summer Nvidia – a company most people have never heard of – has overtaken Intel to become the world’s most valuable chipmaker.  At the same time, it is literally buying up other company’s proprietary technology.  That includes ARM.
Remember that ARM only designs chips, then it licences the technology to others to manufacture.  But Invidia wants to keep that the ARM designs and make its own chips.  That has two serious consequences.  First, ARM won’t be able to licence its new chip designs to other companies apart from its parent, Nvidia. That will kill off ARM’s major revenue streams, eventually throttling the British company.
Second, with ARM technology, Nvidia is moving aggressively into chip making as well as licensing. Nvidia’s acquisition of ARM comes just when Intel’s next generation of chips has encountered major delays. Expect Nvidia to use ARM tech to contend with Intel across a wide range of devices.  This underpins the rise in Nvidia shares over the past two months.  However, straddling two distinct business models – manufacturing and chip design – is risky for Nvidia.  If it runs into trouble, expect it to cut back on investment in ARM.
Where does this leave the UK?  Boris & Co. are in deep doodoo over the ARM takeover.  For starters, US trade negotiators are likely to use it as a bargaining chip.  If the UK blocks the ARM deal, or insists on onerous conditions, expect US trade negotiators to play rough, citing British unwillingness to treat American companies fairly.  I can’t see Boris defending ARM or British technology, if it means sinking a quick trade deal with the White House.
Of course, there is one person in the Boris entourage who might be worried by the assault on ARM – none other than a certain Dominic Cummings. Super nerd Cummings has long dreamt of creating the first billion-pound UK high tech giant. Unfortunately, the only possible basis for such a tech superstar was just acquired by Nvidia.

Comments (14)

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  1. John Ross says:

    What a f##king bunch of f##king halfwitts.
    This country will be broke in a couple of years if we don’t get a grip.
    Somebody in the name of reason do something half sensible.
    One f##k up after the next.
    Holy s##t, give me strength.

  2. Douglas Wilson says:

    So, just more of the same selling and hawking anything and everything to foreign countries while banging very loudly on the British nationalist drum, deafening half the population so they can’t think straight, which has been the order of the day since that old bag Thatcher got her talons on the country and started tearing it to pieces.

    A highlight of the day for me was John Redwood dismissing Joe Biden’s warning about the importance of the Good Friday Agreement to the Americans with some ludicrous put down about how Britain doesn’t need a US trade deal anyway after all. So.much for that idea then!

    Truly delusional people, the Brexiters, almost certainly some of them are on the spectrum, people who think they can take on the EU, the USA and the Scots, the Irish and the Welsh all at the same time: totally fckn raj even by the standards of an Irvine Welsh novel.

    If there has been anything resembling an effective opposition over the last few years, surely these feeble minded, dewey-eyed nostalgists would have been sent packing long ago?

    As it is we have good old Keir Starmer who came up to Scotland by train to tell the country where no one votes Labour that he wouldn’t be giving us a referendum either. Why bother coming?

    Maybe send a postcard next time Keir,. To his credit, he didn’t make a complete are of himself by drinking Irn Bru on the train like Cornyn did though he did mention the “lovely scenery”.

    When is the madness going to end folks?

    1. Douglas Wilson says:

      PS: curious times we live in when a cross dressing fictional character in a novel causes a big stushie while the US President being accused of yet another sexual assault barely raises an eyebrow.

      How to explain it? How can a fictional character offend while Trump gets away with it?

      1. Douglas Wilson says:

        If Trump were a character in a work of fiction, the author would be denounced as a racist, a misogynist, a fascist even. But as a real life human being, he runs for office and wins, millions vote for him.

        That sums up the irrational, hypocritical times we live in. Authors are hounded for their fictional characters while real life presidents get away with murder ( though JK Rowling has complicated matters by claiming her cross dressing villain is based on a real life character).

        As for the Brexiters, they think that Britain, a country of 60 million people, can successfully compete with China (population 1.5 billion), with India (1.3 billion) with the USA (330 million) and the EU (450 million) on its own…

        …Britain which doesn’t make anything really at all, which has no interest in the cultures and languages of the rest of the world (nothing like was the case 100 years ago) which has no natural resources on any scale to speak of, whose army is sent into battle without proper kit, whose football teams between the four nations of the isles have never won anything in the modern era – not like Spain, not like Italy, not like Germany not like France or even Portugal -…. and whose govt is incapable of organizing a test and trace programme 6 months into a pandemic…

        What is this delusion based on? The fact that Britain once had an empire. That is it. There is no game plan, no big idea, other than that as Britain once had an empire, they “can jolly well have one again” if they put their minds to it.

        Too much bingeing on historical drama, too many box-sets, too many war films, too much heritage and nostalgia and empire stories….blame the UK film and television industry from Merchant Ivory onwards. That’s where it started.

        This is a collective delusion, Brexit, and there is no argument which can be used against the Redwoods and Goves because their vision of the future is not based on rational analysis…

        As for Starmer, why doesn’t he actually do his job and oppose the incompetent and delinquent government instead of fretting about Red Wall votes in future elections which explains why he is lying so low….???

        1. Tom Ultuous says:

          The British are “a great nation and a great people” and can overcome anything (even global warming) by singing Vera Lynn war songs.

          It’s no longer a nationality, it’s a mentality.

          1. Douglas Wilson says:

            You said it, Tom…
            Brexit isn’t so much a political project as a wet dream…
            Someone like Michael Gove’s wet dream.
            We really don’t want to get caught up in something nasty and sordid like that.
            Take this idea of “global Britain”.
            You’d expect a country which was projecting a new global vision for the future to invest heavily in foreign language learning, right?
            I mean that old line about if you’re buying something from a German they’ll speak English, but if you’re selling, speaking some German is a big advantage.
            Yet nothing could be further from the truth with these people.
            The Brexiters’ interest in foreign cultures is zero. The only language attainment the Brexiters have between them is the odd Latin phrase Rees-Mogg throws in and Boris Johnson’s much fabled passing acquaintance with ancient Greek which he never fails to mention.
            They don’t even speak French anymore, let alone Mandarin or Hindi or Arabic.
            The whole of their project is based on the rest of the world speaking English….it’s totally pathetic…

    2. Axel P Kulit says:

      Selling the family silver has always been the English way.

      Thatcher did it with anything not tied down.

      A long time ago ICL produced a supercomputer called the Distributed Array Processor (DAP). Then ICL decided to stop making it.
      I remained in academia but many others got together to create a business to monetise the DAP. The business eventually failed, I do not know why. Then it was sold to a USA company I think called Masspar. The professor who had left to head the company returned to Academia as a research assistant.

      A few years later things turned out exactly as I predicted to my colleagues: I heard the news on the radio that a great new American super computer called a Distributed Array Processor would be bought by various British companies.

      So the pattern of Invented in the UK, sold to the USA then marketed as a great US invention continues.

      I still wonder why the UK cannot turn great inventions into money.

  3. John S Warren says:

    Thank you for this article. I can even remember Acorn; unfortunately I seem to recall the BBC product had a rather home-made, rather than ‘homegrown’ reputation, deserved or not. It was also too easily associated in the public mind with “Acorn Antiques” (!); which brings back to me, at least one of the achingly funniest comedy sketches, by Julie ‘Two Soups’ Walters, serving a wondefully soupless, and endless lunch (which of course reminded older Glaswegians of the elderly ladies in their formal waitress attire who had long served old-fashioned lunches, with robust and homely attention to every dated detail, in soon-to-be-forgotten restaurants in Glasgow city centre, until the very early 1960s).

    It seems that Britain is now settling for Walterian decrepitude while its Government allows everything around us to be ripped-off, sold off, or uses our public financial resources lavishly to award public contracts principally for private profit and for who-knows-what reason, to who-knowns-whom; rather than delivering the promised services, or goods, or value for money (think ferries, think PPE, think centralised, privatised test-and-trace – when we had, and still need a local non-private public health system to deliver the services – as the scientific professionals well know). At least there is something nostalgically heroic in Julie Walters’ tribute to generations of women waitresses who served their public to the very, very end. There is nothing heoic about this British Government, save its heroic incompetence.

  4. Wul says:

    Around the time of buying ARM, SoftBank was investing heavily in “We Work”.

    Part of “We Work” was “We Live”, a concept whereby your office space, home and housekeeping services are all provided to you by the company. You would work, play, eat, socialise, shop and sleep under one roof provided by one company. A perfect little hive of perfect workers. Well-behaved workers too, because who would want to fall out with the company that feeds and houses you.

    1. Roland says:

      There’s a song about that – shovelling 16 tons (oops almost went metric there) etc.

    2. Axel P Kulit says:

      Isn’t that the Chinese way of using workers?

      I am sure Japan would like to introduce this but think they can’t

      And I am absolutely certain British employers would love this idea.

    3. Stuart Clark says:

      Sounds a bit like the furlough scheme , Home -working with Netflix and Asda deliveries.

      1. Axel P Kulit says:

        Yes, except the company is not, under the furlough scheme, paying for the accommodation, food, electricity etc.

  5. J M Brennan says:

    My eye was caught by the ‘weird and super rich’, and I had a look at an article in The Guardian business section for July 18th, 2016.

    In that year, ARM’s chief executive, Simon Segars, sold ARM to SoftBank, accessing $32bn for investment in the company. SoftBank paid £17 a share, and an interim dividend of 3.78p per share. At the time, Simon Segars held shares to the value of £11,000,000. Using my little calculator, it would seem that the sale gave him what The Guardian referred to as a ‘windfall’, though of course, not all profit, of £187,415,800. This was far less than what the chief operating officer, Mike Muller was paid for his £21m bag of shares. This amounted to £357,793,800.

    I apologise if my figures are not accurate. Such large numbers are a bit bewildering to someone on a state pension.

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