The chip industry is breathing a sigh of relief over the aborted purchase of Arm Ltd. by U.S. chipmaker Nvidia Corp., but the firms and their shareholders have been left with challenges the deal would have addressed.

Announced in 2020, Nvidia’s plan to buy U.K. firm Arm from SoftBank Group Corp. was seen as worth up to $80 billion. The move sparked an immediate backlash, prompting concerns the deal might violate Arm’s status as a neutral player in the hypercompetitive chip sector.

Many analysts had warned the deal was “doomed from the start,” due to anti-competitive regulatory concerns and geopolitical tensions.

Those predictions played out Tuesday as SoftBank Group Corp. shelved the sale citing those very regulatory hurdles, with the transaction drawing scrutiny in the United States, the United Kingdom and European Union.

“The whole point about Arm was always that it was the Switzerland of the semiconductor industry, dealing very even-handedly with all of its 500-plus licensees. That wasn’t lost on the regulators in the U.K., the U.S., EU and China,” said Hermann Hauser, one of Arm’s founders.

“There’s a chip war going on around the world, so many weren’t very welcoming of such a key architecture firm going to the U.S.,” said Greg Roh, head of research at Seoul-based Hyundai Motor Securities. “Countries are competitively trying to build up their chip industries, and will try to defend against their chip technology moving to another country,” he said.

Arm-based chips were perfectly suited for mobile devices due to their low energy consumption and the company’s technology underpinned the smartphone wave, licensing more and more powerful processor designs to Apple Inc. and its rivals.

The merger would have boosted both companies’ ambitions to crack the booming data-center sector, which is currently dominated by Intel Corp. and its x86 architecture.

In April, Nvidia announced plans to release a specialized central processing unit (CPU) chip for data centers called “Grace” based on Arm’s architecture. That was viewed at the time as a harbinger of the charge the firms would make together into the sector.

Arm makes instruction set architecture (ISA) that it licenses to a wide range of companies, which use it to make blueprints for chip designs. Arm dominates the market for smartphone application processors, with customers including Apple and Qualcomm Inc.

Nvidia, meanwhile, makes graphics processing units (GPUs) used for high-performance computing applications and gaming.

Stacy Rasgon, who tracks the chip sector for Bernstein Research, says that Nvidia is not solely reliant on Arm to fulfill its data center ambitions. But he said it would be harder for Nvidia to build out a software ecosystem around those chips on its own, “so buying Arm would be helpful for that.”

With the sale collapsed, Arm said it now aims to go public in 2023 — having gone private in 2016 when SoftBank purchased it. In an interview, newly appointed Arm CEO Rene Haas said he is “excited about the opportunity to be a publicly listed company again.”

But the company itself, together with Nvidia, had as recently as December tried to persuade British regulators that a deal with Nvidia was more favorable than an IPO. They said going public would steer Arm to focus on short-term profits at the expense of its much needed foray into the server sector, especially as growth in the smartphone industry has slowed.

“While Arm’s licensees such as Apple, Qualcomm, and Amazon have enjoyed skyrocketing revenue growth and profits, as well as soaring market valuations, Arm has lately endured comparably flat revenues, rising costs, and lower profits that would likely present challenges for a 30-year old public company,” they said in a jointly-issued letter.

Still, there may be a silver lining, said Stewart Randall, who tracks the sector at Shanghai-based consultancy Intralink. He said that while a listed company is beholden to its shareholders, it potentially is also under greater pressure to be innovative and competitive.

“Revenues have grown pretty slowly under SoftBank. I hope this lights a fire under them,” he said.

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