A new tech giant is born! Jensen Huang, aged 57, is about to acquire Masayoshi Son’s most valuable asset

Author | Liu Bo

Reported by | Investment Community PEdaily

Masayoshi Son is about to sell his 'most valuable asset.'

The investment community (ID: pedaily2012) learned that according to The Wall Street Journal, SoftBank Group is nearing a deal with chip giant NVIDIA to sell its UK-based chip design subsidiary ARM to the latter. Multiple insiders revealed that the total price of this deal will exceed $40 billion and is expected to be announced as early as next Monday.

Subsequently, Japanese media also confirmed that SoftBank has reached an agreement to sell ARM, a UK-based company, to NVIDIA for $40 billion. However, it still needs to await antitrust reviews from certain countries.

Once the transaction is completed, this will not only be the largest asset sale in SoftBank’s history but also the largest acquisition in the global chip industry's history. Masayoshi Son’s investment from four years ago could generate returns of $8 billion.

Even more profound impacts lie ahead. NVIDIA + ARM, the birth of a new behemoth, will undoubtedly reshape the landscape of the global chip industry. Jensen Huang, the 57-year-old founder of NVIDIA, will dominate the planet's chip business.

The largest chip acquisition in history is about to be born!

$40 billion, SoftBank to sell its 'most valuable asset'

The acquisition rumors between NVIDIA and ARM that have lasted for months are finally about to settle.

According to The Wall Street Journal, SoftBank will sell its UK-based chip design subsidiary ARM to US chip giant NVIDIA, and the two parties are close to reaching an agreement. Multiple insiders revealed that this deal will be completed in the form of cash plus stock,with a total price exceeding $40 billion,Announcement expected as early as next Monday. On September 13, Japanese media also confirmed this news.

Once the deal is completed, it will not only be the largest asset sale in SoftBank Group's history, but alsoone of the largest acquisitions in the history of the global chip industry.。

As early as April this year, SoftBank placed ARM on the market to alleviate financial pressure. Masayoshi Son invited Goldman Sachs to finalize the buyer and hoped that the buyer would payapproximately £40 billion (£52 billion) for the business,which exceeds the £24 billion (£32 billion) paid in 2016.

Goldman Sachs then approached Apple, but Apple decided not to proceed with the acquisition. Goldman Sachs subsequently attempted to form a consortium including Qualcomm, Samsung, and NVIDIA to acquire ARM, but ultimately, only NVIDIA remained at the negotiating table.

Perhaps due to the $52 billion price tag set by Masayoshi Son being too high, Jensen Huang, CEO of NVIDIA, clearly stated during the earnings call on August 20, “NVIDIA has had many collaborations with ARM thus far, but no acquisition plan has been proposed.”

Now, with the price reduced by $12 billion, Jensen Huang was still interested. Barring any unexpected issues, SoftBank will sell ARM to NVIDIA for $40 billion.

As a giant in the global chip design industry,ARM's market coverage is as high as 90%, companies such as Apple, Qualcomm, Samsung, and Huawei are all its clients. Due to the significant impact of this acquisition on the entire technology market, ARM’s current clients are highly likely to raise objections.

Moreover, this deal also faces regulatory issues. The UK government had insisted that SoftBank keep ARM's headquarters in the UK and increase the number of employees, maintaining the number of UK-based workers. Even within ARM, there is no consensus on this deal. ARM co-founder Hermann Hauser once stated that selling ARM to NVIDIA would be a disaster.

However, for both SoftBank and NVIDIA, this is a win-win deal, the former can continue to recoup funds, offsetting last year's huge losses; the latter will further consolidate its leading position in the chip industry and improve its mobile product ecosystem. SoftBank and NVIDIA seem to have no reason to reject this largest acquisition in the chip industry.

SoftBank's four-year investment in ARM could yield a profit of $8 billion,

a relief for Masayoshi Son

For Masayoshi Son, selling ARM was an act of last resort.

Four months ago, SoftBank released its fiscal year 2019 financial report as of March 31 this year, revealing the largest deficit in global venture capital history: a 1.365 trillion yen operating loss in 2019. This marked SoftBank's first loss in 15 years and the most severe loss since the company's founding.

Masayoshi Son faced his darkest moment. In just the first half of 2020, three companies in his investment portfolio announced bankruptcy. Due to consecutive setbacks in investment projects, investors began to worry that Vision Fund's investment portfolio was filled with more struggling companies, greatly reducing their willingness to contribute to Vision Fund II. As a result, SoftBank ultimately decided in April to freeze Vision Fund II investments temporarily and not pursue new investments.

Faced with unprecedented difficulties, SoftBank had no choice but to sell assets to save itself.

In 2016,Masayoshi Son spent $32 billion acquiring ARM,creating the most high-profile acquisition of that year. At that time, he stated that ARM would be the future of SoftBank Group. He also described the so-called Internet of Things as the 'largest paradigm shift in human history,' and expressed his willingness to make a big bet on this phenomenon.

However, by April this year, Masayoshi Son put ARM up for sale. The drastic change in his attitude was due to both easing financial pressure and the fact that ARM did not experience the strong growth he had hoped for. Instead, sales growth relatively stagnated.

Calculating at the price of $40 billion, Masayoshi Son’s four-year investmentwill yield returns as high as $8 billion.This funding is crucial for SoftBank, which is currently in distress. It should be noted that due to consecutive failures in investment projects, the second Vision Fund’s fundraising has not been going smoothly.

In order to quickly reverse its fortunes, Masayoshi Son has also started making bold bets in the secondary market.

According to SEC regulatory filings, during August this year, SoftBank purchased nearly$4 billion worth of stocks in tech giants such as Amazon and Microsoft.. Although regulatory filings did not disclose SoftBank Group’s call options, sources say that SoftBank spentapproximately $40 billion purchasing call options related to its stock holdings, while also buying stocks under other names.

However, with the ongoing plunge in US tech stocks, Masayoshi Son, who has already splashed out $80 billion, finds himself in a difficult position once again.

NVIDIA + ARM, a mega-giant is born!

This 57-year-old Chinese-American will become one of the most powerful people in the world.

A new mega giant has emerged.

As a GPU (Graphics Processing Unit) giant, once NVIDIA completes the acquisition of ARM, it means that the former will also enter the CPU space, encroaching on Intel's core territory. Some investors have commented, "If NVIDIA really acquires ARM, it would be like acquiring the Intel of mobile devices."。”

Public data shows that ARM, through its IP licensing model, has captured 95% of the mobile CPU market share, with more than 100 companies having signed technology licensing agreements with ARM. Its shipments have increased from 10 billion units per year in 2013 to 20 billion units annually today.

Once the deal is completed, NVIDIA is set to benefit from the synergies created by the acquisition of Arm. It will not only hold absolute sway over the majority of smartphone and tablet chip markets but also explore the data center ecosystem outside of Intel through ARM, establishing a foothold in certain PC and server segments.

In fact,Prior to acquiring ARM, NVIDIA had already embarked on an acquisition spree.In the second quarter of this year, NVIDIA first completed its acquisition of Mellanox Technologies based in Israel, then announced the acquisition of networking software company Cumulus Networks at an undisclosed price.

It's clear that NVIDIA is becoming a massive carrier. And all of this wouldn't be possible without its helmsman — Jensen Huang, the 'Godfather of AI'.。

Jensen Huang, born in Taiwan, China in 1963, after graduating from Oregon State University in 1983, went straight to Silicon Valley with dreams in his heart. He worked at AMD and LSI Logic, gaining substantial technical experience that laid a solid foundation for his future entrepreneurial ventures.

In 1993, at the age of 30, Huang and two other partners co-founded NVIDIA, aiming at the graphics chip market. Although the prospects of this field were unclear at the time, they firmly believed a wave was coming.

By 1997, NVIDIA launched its third-generation product, Riva 128, which not only supported new industry standards but was also four times faster than its competitors. Unsurprisingly, Riva 128 gained market recognition, selling one million units within four months of its launch. By the end of 1999, Huang unexpectedly released an entirely new architecture display chip, GeForce256, pioneering the GPU era in the display chip industry.

In the more than 20 years since, NVIDIA has faced downturns, with its stock price even dropping from $37 to $6 at one point. However, Jensen Huang has consistently stayed committed to the GPU market. He often reminded himself and others: "Remember, the company is only 30 days away from going out of business.""Such words to encourage employees."

Finally, driven by the huge trends in AI and deep learning in recent years as well as the demand spurred by mining machines, NVIDIA's GPU chips have experienced explosive growth. The latest earnings report shows that NVIDIA’s revenue for the second quarter reached $3.87 billion, a 50% increase from $2.58 billion in the same period last year, and a 26% increase from $3.08 billion in the previous quarter.

At the same time, NVIDIA's stock price has continued to hit new highs,with its latest market value reaching $300.22 billion,surpassing the chip giant Intel for the first time,becoming the top chip company by market value in the U.S.and leaving its long-time rival in the GPU space, AMD, far behind.

But it is believed that for Jensen Huang, who wakes up every day in 'anxiety,' his ambitions go far beyond this.

Once ARM is acquired, NVIDIA will undoubtedly become even more powerful. And as the person steering NVIDIA – 57-year-old Jensen Huang – he may have the opportunity to dominate the global chip industry and become one of the most powerful figures on this planet.

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