ARM: Attractive Yet Hard to Embrace in Semiconductor Design

Why the Popular Semiconductor Acquisition of ARM Is Not Attractive

[Asia Economy Reporters Sunmi Park and Chaeseok Moon] As Samsung Electronics Vice Chairman Lee Jae-yong is expected to engage in the acquisition of the UK fabless semiconductor design company ARM during his current European trip, opinions within the semiconductor industry increasingly suggest that such a move would be realistically difficult to pursue. While ARM is an attractive enough asset that domestic semiconductor companies like Samsung Electronics and SK Hynix would covet, the acquisition is considered challenging in practice, and synergy creation with existing businesses is also seen as difficult.

◆ The recurring ARM M&A speculation = According to the semiconductor industry on the 20th, global semiconductor-related companies recently interested in acquiring the UK-based ARM include domestic firms Samsung Electronics and SK Hynix, and overseas companies such as the US-based Qualcomm and Intel. Previously, Nvidia attempted to acquire ARM directly but the deal fell through due to antitrust issues.

ARM, established in 1990, is a UK semiconductor intellectual property (IP) company. Its business model focuses on designing and licensing core components such as mobile application processors (APs) and graphics processing units (GPUs), which serve as the brains of smartphones. Leading global fabless companies pay royalties to ARM and use ARM’s architecture to manufacture their products.

The acquisition of ARM is regarded as a key to complementing one of the major weaknesses of the Korean semiconductor industry?semiconductor design. Since Korea’s semiconductor industry is strong in manufacturing but relatively weak in design, packaging, and backend processes, voices are growing that leading Korean semiconductor companies like Samsung Electronics and SK Hynix should pursue the acquisition to achieve balanced development. This is also why speculation about the possibility of acquiring UK-based ARM arises repeatedly whenever Vice Chairman Lee embarks on a European trip. Earlier this year, SK Hynix CEO Park Jung-ho publicly stated at the shareholders’ meeting that the company is considering securing ARM shares.

However, the semiconductor industry largely believes that it would be realistically difficult for domestic companies to acquire ARM. In particular, Samsung Electronics’ foundry business, which serves major semiconductor design companies as customers, means that the immediate benefits of acquiring ARM would not be significant.

Global fabless companies that pay royalties to ARM and design semiconductors may feel burdened by potential confidentiality issues and could withdraw from Samsung Electronics’ customer base. For customers, having to pay royalties to Samsung Electronics instead of ARM could also be a concern. An industry insider explained, "If Samsung Electronics acquires ARM, conflicts of interest with customers could arise," adding, "Fabless companies might find Samsung burdensome."

◆ The insurmountable wall of antitrust regulations = Antitrust issues also pose a difficult challenge in the ARM acquisition process. In fact, Nvidia’s attempt to acquire ARM was blocked by competition authorities such as the US Federal Trade Commission (FTC) and the UK Competition and Markets Authority (CMA). The UK government regards ARM’s acquisition by foreign peer companies as a matter of industrial technology leakage and national security.

ARM’s founder, Hermann Hauser, even requested former UK Prime Minister Boris Johnson to exercise a veto. After SoftBank acquired ARM in 2016, the company shifted its strategy from mergers and acquisitions to pursuing an initial public offering (IPO) targeted for March next year following the collapse of the Nvidia deal, reflecting the industry’s view that ARM M&A is not easy.

The recent surge in ARM’s valuation, driven by global semiconductor companies’ interest in acquiring it, is also cited as a factor reducing the attractiveness of the acquisition. When Nvidia was pursuing the acquisition, ARM’s price was around $40 billion (approximately 54.84 trillion KRW), but recently, valuations as high as $60 billion have been mentioned.

Moreover, the emergence of alternatives capable of semiconductor design without necessarily acquiring the now more expensive ARM also diminishes the appeal of the acquisition. Efforts within the semiconductor industry to reduce dependence on ARM have advanced, with growing movements to utilize the open-source RISC-V as an alternative to ARM.

An industry official said, "As ARM has grown larger, the risks involved have increased, making it burdensome to acquire it alone," adding, "Forming a consortium of multiple companies to acquire ARM is emerging as an option, but this too is difficult due to the differing interests of each company and antitrust issues."

This content was produced with the assistance of AI translation services.