The Sunday Times February 13, 2022 5
BUSINESS
D
ressed in a light blue hazmat
suit, a Cambridge University
student hoists a tank of liq-
uid nitrogen and pours it
into a funnel on the side of a
large pressurised bell jar.
The liquid nitrogen drifts
across the cleanroom floor
like dry ice at a rock gig.
She waits a while, sticks
on a pair of special goggles and heats a
small strip of pure gold to more than
2,700C. At that temperature, the gold
evaporates, floats up and sticks to a thin
film of glass in a specific pattern, forming
the basis of a semiconductor.
Elsewhere in the pressurised clean-
room, where the humidity is controlled
to limit particles in the air to 10,000 per
cubic metre (compared with millions out-
side), some of the world’s sharpest minds
mix chemicals and carefully use tweezers
to handle tiny glass rectangles that will
soon become microchips.
The cleanroom of the historic Caven-
dish Laboratory is the beating heart of
Britain’s semiconductor industry. Here,
academics test out new uses of micro-
chips that could become Cambridge’s
next tech superpower.
In this city, it is hard to escape the
influence of ARM, its current microchip
champion. Just metres away is a building
called the Hauser Forum, established by
one of ARM’s founders, Hermann Hau-
ser, who wanted to encourage students,
businesses and others to swap ideas and
create new semiconductor firms. Cross
the historic city centre and you arrive at
the Centre for Computing History, where
ARM’s name features prominently.
“ARM has been critical to Cambridge,”
said Dr Diarmuid O’Brien, chief executive
of Cambridge Enterprise, which helps
turn lab concepts into fully fledged com-
panies in the hope of spawning the next
ARM. “The cluster has grown to 30 sci-
ence and technology parks, about 5,000
knowledge-intensive companies, and
100,000 people doing research and inno-
vation around Cambridge. It’s fair to say
ARM is the grandfather of a lot of that.”
But last week, ARM’s $66 billion
(£49 billion) sale to US chip behemoth
Nvidia fell through amid intense scrutiny
from regulators. And now it is facing
questions about its own future. Can it
keep growing and become a global semi-
conductor superpower? Can it keep hold
of talented engineers? Will the public
markets give it the firepower it needs to
showcase Britain on a global stage?THE DEAL UNRAVELS
Smiling for the cameras while shaking
hands with then-chancellor Philip Ham-
mond in 2016, Masayoshi Son painted the
vision of a brighter future for ARM under
the ownership of SoftBank, his Japanese
investment firm. ARM’s microprocessor
designs were in almost every smart-
phone and computer in the world, but
mobile sales had slowed to a halt. ARM
makes its money by licensing out its tech-
nology, which chip giants use to make
their semiconductors.
Son, an eccentric Japanese-Korean bil-
lionaire tech investor, decided he would
push the company towards the internet
of things, predicting an explosion of
home appliances connected to the inter-
net, which would require ARM chips. It
was a vision for which he was willing to
shell out $31 billion.
But the predicted growth in the inter-
net of things failed to materialise over the
next few years. And after SoftBank’s
investments in other companies, such as
WeWork, began to unravel, it sought to
offload ARM. It talked of a stock market
listing until Nvidia came along in Septem-
ber 2020 and offered $40 billion to gob-
ble it up in a cash and shares deal — a
price that would climb to $66 billion as
Nvidia’s share price boomed on the back
of surging demand for its chips.
Nvidia’s billionaire founder and boss,
Jensen Huang, made a list of promises.
He would build a new artificial intelli-
gence (AI) research centre at ARM’s spar-with academics in the city, and Apple has
a secretive office there. These big players
are known for offering higher and higher
salaries for the best developers, pro-
grammers or engineers.
Gary Brotman, boss of Cambridge-
based AI company Secondmind, said
there was a battle for talent. “It’s always a
balance between are there enough or are
you willing to pay?” he said. “And I think
the dynamic is different depending on
whether you’re a brand new start-up, a
mid-stage start-up like ours, or a heavy-
hitter like ... Amazon or Google.”
Despite this backdrop, ARM intro-
duced a hiring freeze last year at its chip
design arm and cancelled a benefits pack-
age known as “FlexPot”, which gave staff
about £4,500 to spend on wellbeing,
including anything from puppy training
to massages. Its staff were not happy.
ARM then responded with an 8 per cent
pay rise for engineers this year, though
other departments fared less well.
While the Unite union welcomed the
pay rise, regional officer Matt Whaley
said: “Our members are now quite con-
cerned that should it now come down to
an IPO, the company could resort to cost-
cutting in the near future. ARM workers
are quite skilled — they shouldn’t be pay-
ing the price for any challenges that are
the making of ARM’s parent SoftBank.”WHERE WILL ARM GO TO FLOAT?
The battle now is for British politicians to
convince ARM to list in London instead of
New York. Chris Philp, the tech minister,
is understood to have contacted Down-
ing Street and the London Stock
Exchange about Son’s comments.
But even Simon Segars — until last
week the boss of ARM — had previously
questioned whether stock market inves-
tors could stomach the huge sums
needed by the company to become a
global superpower. Last year, he said it
had considered a listing but decided the
“pressure to deliver short-term revenue
growth and profitability would suffocate
our ability to invest, expand, move fast
and innovate”. Segars left when his posi-
tion became untenable now a float is
back on the agenda. He was replaced by
American Rene Haas.
His warning, though, may still hold
true when it comes to the location of any
listing. “If ARM is planning to keep earn-
ings low by ploughing investment back
in, there’s no doubt the US market’s going
to be a better place for it,” said a former
senior ARM insider, citing US investors’
perceived appetite for long-term invest-
ment over short-term profits.
The location of ARM’s float also has
implications for Britain’s semiconductor
industry. Mark Lippett, chief executive of
XMOS, a Bristol-based chip designer spe-
cialising in voice control, said it was con-
sidering a London float and “a couple of
other routes as well”. He said: “There’s
some really smart semiconductor people
in London. It’s not as deep a market as the
US, but depth is about having ... other
companies. That’s why it’s so important
that when you get an opportunity to get a
high-profile business traded in London,
we should try and do it.”
Hauser said ARM could pursue a dual
listing in both London and the US, argu-
ing that “fund managers across the world
now get it” given the high-profile nature
of the takeover saga.
Last week, SoftBank began its attempt
to reel in potential investors to ARM
when it said full-year revenues were set to
jump to £1.8 billion, with underlying prof-
its rising to £660 million. It highlighted
ARM’s growing share in the car market
and data centres. Damindu Jayaweera, a
tech analyst at broker Peel Hunt, said:
“Those two markets are basically ARM’s
to lose.”
Last week, new boss Haas had a very
different message to his predecessor,
insisting: “There isn’t anything Nvidia
and ARM could do together that we can’t
do by ourselves.” He has his work cut out
to convince potential investors of that.If it wants to
invest and
grow, it must
float in the US,
not London
WHAT NVIDIA PROMISED
6 $1.5 billion in Nvidia shares for
Arm’s 6,500 staff
6 Increase headcount in the UK
6 Create a new artificial intelligence
research centre near Arm’s
headquarters
6 Build a new supercomputer in
Cambridge, expected to be one of
the world’s most powerfulILLUSTRATION: PETE BAKERkling new headquarters to the southeast
of the city, including a world-leading
supercomputer that would help drugs
giants find cures for diseases, and also
hand ARM’s 6,500 staff $1.5 billion in
Nvidia shares — equivalent to about
£176,000 each — as a sweetener.
But crucially, Huang, 58, pointed to a
new direction for ARM. Like Nvidia, it
would target the booming industries of
AI and cloud computing. These were
areas that would require billions of
pounds of investment, and Huang was
ready to dip into his own pockets.
“They need to invest in new technol-
ogies like AI and software that is not in
its core wheelhouse today,” he said last
year. “Very few technology companies
succeeded and stayed vibrant through
multiple eras of computing, and ARM
is right at that juncture. This period is
really a very delicate time for them.”
Since then, regulators around the
world have closed in on the prospec-
tive deal. Rivals such as Qualcomm
and Microsoft complained that Nvidia,
initially a graphics chips maker spe-
cialising in video games, could restrict
supply of ARM’s designs for its own
benefit — and even raise prices.
In November, culture secretary
Nadine Dorries ordered an in-depth
national security and competition
investigation into the deal. A month
later, US competition watchdogs in
effect put the final nail in the coffin by
suing to block the takeover. Now Nvidia
has walked away and SoftBank is plan-
ning to float ARM on the stock market,
with Son earmarking New York rather
than London in a blow to the UK govern-
ment, which has tried to encourage more
tech firms to list in the UK.
Was Huang’s prediction that ARM
could wither without new investment
purely spin to win over sceptical regula-tors? Some argue he has a point. Under
SoftBank’s ownership, ARM’s growth
ground to a halt. While investment
increased, revenues flatlined. Turnover
between 2017 and 2019 was relatively flat
at about £1.3 billion, rising only slightly to
£1.45 billion in 2020.
That was at a time when rival chip
giants were coining it in.
Early in the pandemic, chip-making
factories in Taiwan and South Korea,
where the world’s biggest companies
outsource manufacturing, wound down
production. But then demand for TVs,
phones and cars, which require thou-
sands of microchips to operate, spiked
and caught these manufacturers short.
And it wasn’t easy to switch production
back on in the cleanrooms, which,
unlike the Cavendish research lab,
span the area of several football
pitches and are operated on a gigantic
scale by automated machines.
When these huge factories finally
got started again, it was boom time for
the chip companies as they cashed in
on the soaring demand. Nvidia’s shares
have risen fivefold since the pandemic
was declared, valuing it at $620 billion.
Fellow chip giant Broadcom has more
than trebled to $240 billion.
Yet ARM was being sold, initially, for
$40 billion— not a huge jump from the
$31 billion that SoftBank had paid for it in- It is said to have a loyal workforce,
proud to work for a home-grown com-
pany, but they will have missed out on a
bumper payday by not joining Nvidia.
The company had been trying to hire
more engineers, but demand for tech
skills has been outstripping supply. And
those leaving Cambridge University now
have more options than ever as Silicon
Valley giants rock up. Microsoft set up a
deep-tech research lab in the centre of
Cambridge, Google is working closely
Jamie Nimmo heads to
Silicon Fen and finds a
tech world willing its
microchip champion
to thrive on its own
Can
ARM
break
free?