SoftBank is selling chip designer Arm to Nvidia for $40 billion

SoftBank announced Sunday that it is selling Arm, whose chip designs power most modern phone processors, to Nvidia for $40 billion in cash and stock.

Why it matters: The move — reportedly the most expensive deal in the history of chip industry — will give Nvidia control of the company behind the core chip designs used by Apple, Qualcomm and others.

Details:

• Nvidia is paying $21.5 billion in stock and $12 billion in cash, including $2 billion payable at signing. SoftBank can receive up to $5 billion more in stock and/or cash if the company reaches certain financial targets, with another $1.5 billion in Nvidia shares set aside for Arm employees.
• Arm CEO Simon Segars will be joining Nvidia along with other top executives. The deal does not include Arm’s IoT Services Group.
• Nvidia expects the deal to immediately boost its earnings.
• Arm will remain based in Cambridge, UK, with Nvidia setting up its own "center of excellence" for AI research there.

Between the lines: Arm doesn't make chips itself, but its designs are widely used in phones, tablets, game consoles and internet-of-things devices as well as servers and networking gear.

• Nvidia itself uses Arm designs, as do many of the biggest names in tech including Samsung, Apple and Qualcomm.
• Nvidia says it will keep Arm's open licensing model. In the near term it is hard to imagine its key customers going anywhere, but long-term it remains to be seen if they seek to develop alternatives rather than be dependent on a rival for chip designs.

Flashback: SoftBank bought Arm in 2016 for $32 billion, seeing it as a way for the company to make a mark on a whole host of next-generation tech gear. The deal ruffled few feathers because SoftBank wasn't a key customer of Arm's technology.

What they're saying: Nvidia CEO Jensen Huang and Arm CEO Simon Segars both reaffirmed their commitment to offering Arm's technology neutrally to all customers.

• "When they realize the obvious benefits to us and the incredible benefits that we will retain by protecting this business model, I think they will see the logic in it," Huang said, responding to a question from Axios about the fact Nvidia competes with other Arm customers.
• Huang also noted that Nvidia no longer makes chips for cell phones and said that one goal of the deal is to make Arm-based chips an even stronger competitor to Intel in server chips. "We want to put a lot more energy into it," Huang said.
• Segars argued that Arm has a huge incentive to continue treating all customers equally. "The value of Arm always has been the combination of our tech and our business model," Segars said. "It would obviously be hugely value destructive to do something else.”