FTC sues Nvidia to block $75 billion chip deal

FTC sues Nvidia to block $75 billion chip deal

The Federal Trade Commission argued on Thursday that the chip-industry deal is anticompetitive, as it tried to block U.S. chip supplier Nvidia Corp.'s proposed landmark takeover of semiconductor-design specialist Arm Holdings.

The lawsuit marks the beginning of what is likely to be an aggressive antitrust campaign by the FTC under the direction of Chairwoman Lina Khan, a progressive tapped by President Biden to lead the agency.

It is the latest action taken by regulators to stop a blockbuster chip deal. The cash and stock deal value, originally $40 billion when it was announced in September 2020, has risen alongside Nvidia's share price and now sits at around $75 billion.

The FTC's lawsuit filed in its own administrative court alleges that the acquisition would give Nvidia unfettered control over computing technology and designs that rivals need to develop their own competing chips.

If the deal was allowed, the combined firm could stifle next-generation technologies, including ones used to run data centers and driver-assistance systems in cars, the FTC alleges.

Nvidia said that the transaction will benefit the industry and promote competition as we move into this next step in the FTC process.

The Commission, currently composed of two Democrats and two Republicans, voted 4 -- 0 to file the lawsuit, adding a new layer of trouble for a deal that has been met with widespread regulatory skepticism.

Shares in Santa Clara, Calif.-based Nvidia closed up 2.2% Thursday at $321.26, amid widespread expectations that the transaction will face serious regulatory challenges.

A public copy of the lawsuit wasn't immediately available by the FTC. The commission has an administrative trial scheduled for August 2022.

This isn't the first time regulators have stepped in to stop a huge chip deal. In 2018, the U.S. slowed Broadcom Inc.'s attempt to take over another chip giant, Qualcomm Inc., on national security grounds. In 2018, Qualcomm's $44 billion purchase of Dutch chip maker NXP Semiconductors fell apart when China didn't give its regulatory approval.

The deal with Nvidia-Arm raised eyebrows with regulators and chip-making rivals from its early days. Arm, based in Cambridge, England, is one of the most important behind-the-scenes semiconductor companies in the world. SoftBank, which acquired Arm five years ago for $32 billion, had struggled to jump start growth in the business.

Arm designs and licenses the basic blueprints of chips that are in around 90% of the world s smartphones. Companies such as Apple Inc. and Advanced Micro Devices Inc. rely on their design expertise for some of their chips, with Arm acting as a kind of Switzerland to the chip industry, offering its designs to everyone without favoring any one company. Nvidia said last month that the FTC had expressed concern about the deal. Colette Kress, the chip company's chief financial officer, said that Nvidia was engaged in discussions with the FTC about remedies to address those concerns at the time. The FTC's lawsuit alleges that the acquisition would lead to reduced product quality and innovation, higher prices and less choice, harming American consumers.

Britain's antitrust regulators began an in-depth investigation of the proposed transaction last month, citing competition and national security concerns. The regulator, which has a May deadline to publish its report, had previously said that Nvidia's acquisition of Arm would lead to a realistic prospect of less competition, less innovation and more expensive products.

The European Union authorities opened a similar investigation in October, saying that they were concerned that a combined Nvidia-Arm company would have the ability and incentive to restrict rivals from accessing Arm s technology. Nvidia said last month that China has begun to review the transaction.

Nvidia defended its planned purchase through the process, arguing it wouldn't stifle competition.

The shortage of chips has heightened national concerns about access to these increasingly vital components, which is why governments around the world are trying to strengthen their control over semiconductor technology. The U.S. and the EU have pledged billions of dollars to boost local chip making.

For Nvidia Chief Executive Jensen Huang, the proposed acquisition of Arm has been one of his biggest bets to expand beyond the company's historic niche of making graphics processors used heavily in videogames and for artificial intelligence calculations and cryptocurrencies mining. It came a year when Nvidia overtook Intel Corp. as America's biggest semiconductor company by market value, and only a few months after Apple said it was ditching Intel in its Mac computers in favor of its own chip design with Arm ingredients.

Nvidia had hoped to complete the regulatory process and close the transaction by April 2022.

Under the terms of the proposed transaction, SoftBank would get up to $5 billion in cash or stock subject to Arm hitting financial-performance targets. Nvidia pledged to issue 1.5 billion in stock to Arm employees.

Write to Brent Kendall at brent.kendall wsj.com and Stu Woo at Stu.