Nvidia Corp.’s mega-merger with ARM Holdings LLC is not expected to occur in the time frame Nvidia expected, but there are more than a billion reasons to do so next year.
Announcing another quarter of record earnings and sales on Wednesday, Nvidia CFO Colette Kress softened her language on the $ 40 billion acquisition that has many critics in the semiconductor industry.
In May, Kress said that Nvidia NVDA,
it remained “on track to close the transaction within our original early 2022 deadline.” But in a conference call Wednesday, he said “discussions with regulators are taking longer than initially thought.”
In a subsequent interview with MarketWatch, Kress declined to set a new timeline, but did discuss the most crucial deadline and the money at stake.
“The overall regulatory process is probably taking a bit longer than anticipated,” he said. “We believe that regulators will see the value, the benefits of this deal, to the benefit of this industry, but we do not have a specific date when we believe it will be closed.”
Kress noted that the deal should close in September 2022, which gives Nvidia about a year. Otherwise, the current owner of ARM, Softbank Group Inc. 9984,
manages to keep a breakdown fee of $ 1.25 billion that Nvidia already made as a down payment.
“We will address the issue in September 2022 if we have not achieved regulatory approval, but at this time we are confident that regulators will see the benefit of the deal,” Kress added later when discussing the break-up fee, which was paid to Softbank. . . An additional $ 750 million in license fees were paid directly to ARM.
Earlier this month, there were Reports that UK regulators were considering blocking the deal. for ARM based in Cambridge, England, due to concerns about national security risks. Tellingly, when MarketWatch asked Kress about the “top three geographies” he was dealing with on regulatory matters – the United States, Europe and China – he corrected the reporter to say there are four, adding the United Kingdom.
“We continue to work with the United States, the United Kingdom, the EU and China,” he said, “in each of the four major jurisdictions.”
When asked if there was a country specifically delaying things, Kress said that Nvidia continues to work with four major regulatory agencies and a few smaller ones. “There is no geography, everyone has their own process,” he said.
The deal would add to Nvidia’s fast-growing products a microprocessor designer who licenses its chip designs and create a direct competitor with Intel Corp. INTC,
and Advanced Micro Devices Inc. AMD,
in the data center / server market. ARM still has a small stake there, and Nvidia is strong in selling graphics processors, which run alongside the core microprocessor.
Adding the chip designer that powers most smartphones around the world would be a nice addition, but Nvidia’s incredible growth looks good on its own. Nvidia said sales of its chips to data centers soared 35% in the latest quarter to a record $ 2.37 billion from a year ago, while gaming products saw even faster growth of 85% to $ 3.050 million, with scarce cards and selling fast. Overall, revenue grew 68% to $ 6.51 billion and is expected to increase another 44% in the October quarter, compared to the prior year period, to approximately $ 6.8 billion.
Unlike an earlier jump in game sales, the cryptocurrency is not behind Nvidia’s current peak in overall sales and demand. Sales of Nvidia-designed cards, especially for cryptocurrency mining, were actually disappointing, at $ 266 million, after Kress had projected $ 400 million last quarter. Changing needs for popular cryptocurrency miners like ethereum ETHUSD,
and a changing regulatory environment could be hurting cryptocurrency-related sales, and Kress said they would be “minimal” this quarter.
Most companies that admit to a double whammy of a setback in a massive merger and slow sales in a typically hot product category would likely face recriminations from Wall Street. But high double-digit revenue growth is offsetting those disappointments, and shares in Nvidia, the most valuable chipmaker in the S&P 500 Index SPX,
– gained 2% in trading after the close on Wednesday. Investors better hope those growth rates will stay high, if this big problem is not achieved.