Arm Holdings may not be the best known of British businesses, but it is one of the most successful – and certainly amongst the most globally important.
And the story of what has happened to Arm over the last few years is equally important for what it tells us about this country and its place in the world.
The firm, based in Cambridge’s so-called Silicon Fen, emerged from the 1980s microcomputer boom, fuelled by the BBC’s digital literacy programme and the BBC Micro, one of the very first home computers, which allowed thousands of children to learn programming and game designing.
The BBC Micro was made by Acorn and transformed the company’s fortunes, as soon every classroom in the country had a BBC Micro. Then when Acorn went on to design better and faster microchips it set up Acorn RISC Machines, or Arm, to do so.
Its business model has been very clever. While other technology companies have spent billions and taken huge risks to build vastly expensive computer chip manufacturing plants, Arm just designs the chips themselves.
Its designs are so good that companies around the world want to make the chips and put them in cars, computers, planes, TVs, missiles and nearly everything else these days.
It is a mercenary and licenses those designs to anyone who wants them, then collects vast royalties as a result. Its real triumph came with the rise of the mobile phone, which its chips are perfect for; they are small, light and use less energy than their rivals, suddenly it couldn’t design or license them quickly enough, to all-comers.
But like many other British-born companies, Arm attracted the attention of foreign investors who wanted a piece of the action and, like in many other instances, the British government stood aside and let it be bought in 2016 by the Japanese technology conglomerate SoftBank.
In fact, the government seems to have been more than a passive witness. SoftBank got access to the very top of government and lobbied hard for the deal to go ahead.
SoftBank seems to have struck at just the right moment and said just the right things, because the deal was portrayed as a success story for Brexit. A new global Britain was open for business, attracting investors and creating a global player in high-tech industry.
The fact, the chancellor Philip Hammond declared, that Arm was being sold for $32bn surely showed that Britain had lost none of its allure to international investors. It was therefore a vote of confidence in post-Brexit Britain, which ignored the fact that the post-referendum plunge in the value of the pound made Arm considerably cheaper to buy. In fact, the Brexit vote made Arm 14% cheaper to buy, overnight, as the pound dropped like a stone, a saving of $4.5bn.
The British government also declared itself completely unbothered by the fact that one of the country’s few home-grown technology giants was being bought by a conglomerate, which surely would look to pass it on to the highest bidder, if and when it wanted or needed to.
That time has now arrived and SoftBank is trying to sell Arm to the American computer chip maker Nvidia. It hopes to sell Arm for $40bn, a nice neat $8bn profit in just five years. Or to put it another way, a 25% return. But this time the deal has hit a hitch.
It seems that who designs, makes and owns computer chips is suddenly important to a lot of people including, but not limited to, the British government. It seems it would be fine if Arm were just to be passed endlessly between investors and bankers, but SoftBank has made a mistake – it is trying to sell Arm to Nvidia, which also makes microchips. For a company like Arm which is a mercenary willing to sell its designs and knowledge to all-comers, this is a problem.
That’s because although you can trust a mercenary company when it sells its very best services to all-comers, you really can’t be sure you are getting its best work, when it is owned by and is working for one of your major rivals.
How do you know you are getting the best and latest designs, that Arm isn’t doing better work for its owner, that the information you give it is not being passed on to a rival, that Arm’s owners aren’t blocking research that might help its rivals? In short, you can’t trust it anymore.
All of a sudden that Brexit success story and vote of confidence in Global Britain is looking a lot less shiny and now every man and his dog is launching an inquiry into the deal.
In Britain, the formerly happy-go-lucky, ‘this is a vote of confidence in the country’, post-Brexit euphoria seems somehow to have warped into national security worries.
The country’s new competition regulator has been instructed to launch a probe into the deal on national security grounds. Apparently the country has decided that all those microchips in all those weapons have to come from someone it can trust. Who knew?
The US and China are also looking at the deal, America because it is worried its tech giants would lose out if microchips supply was controlled by a rival, China because this gives the US government a stranglehold on new technology it desperately needs for itself.
And, irony of irony, the EU is also having a long, hard think about this deal. It may well decide that it has a dog in this fight and launch its own inquiry.
It might seem strange that having finally pulled free from the orbit of Brussels the UK should find itself dragged back in, but the EU has a lot at stake in this deal.
It is very keen to make the EU’s industries less dependent on American and Chinese technology, manufacturing and influence. In short, it wants a home-grown high-tech industry that can rival the other two powerhouses.
Just look at how the current shortage of microchips has been hampering the ability of car makers to ramp up output because of production issues on the other side of the world. The EU wants more autonomy and to catch up in the technology race.
If Arm is sold to an American chip maker, the EU will worry that Europe’s ability to build and run giant chip-making factories that can be world beating will be severely limited. It would also mean an even tighter grip on the EU by America’s tech companies and government and the EU doesn’t like the idea of having to dance to other people’s tunes.
The EU can effectively block the deal if it wants to because Arm sells so much to firms within its borders.
It was the European Commission that stood up to Microsoft and made it stop forcing its own search engine on anyone using its software. It was a long-running battle, but Microsoft lost on competition grounds, had to back down and pay hundreds of millions of euros in fines. China and America have much the same level of influence over this deal.
Despite the fact that Britain has left the EU and has its own competition authority this deal illustrates how little freedom that really gives it. China and America have an effective veto on this deal and so too does the EU.
If any of them decides to block it than SoftBank will be looking for another buyer, or even to float Arm on the stock market.
Given that the British government has also discovered it too now cares deeply about who owns Arm, it might think a bit more next time about just letting such a vital, highly successful, homegrown technological giant be gobbled up for cash by a foreign firm.
This deal was therefore never a vote of confidence in Brexit, it was an opportunistic raid on a British success story. If the government had bothered to stop, think and develop an industrial strategy it would never have let Arm be sold in the first place. As it is, that sale has now led to the Americans, the Chinese and the EU having a veto on the future of a multi-billion-pound British company.
That’s sovereignty for you.
