TikTok chooses a dance partner and NVIDIA expands

Well, that was a rather busy weekend. Not only did Bytedance choose Trump’s favourite Oracle as the preferred bidder for TikTok’s US operations, but NVIDIA continued to shine with an acquisition of a leading smartphone CPU manufacturer.

Let’s start with TikTok, the social media sensation of 2020.

TikTok visits the Oracle

In case you missed it, Donald Trump’s general mistrust of China and rather aggressive stance in life in general led to him banning TikTok in America, which would’ve been effective from 20th September. TikTok’s parent company Bytedance had to find a new owner for the asset in the US, which would theoretically allay the security concerns of the Yanks.

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What, you thought expropriation is an African invention? At least Bytedance does get compensation.

Microsoft jumped at the opportunity, seeing this as an excellent way to buy a proper social media platform. Microsoft’s bid was joined by Walmart of all companies, which saw an opportunity to evolve its retail model by selling through new channels like the wildly popular TikTok app. A Microsoft – Walmart alliance would’ve been tough to predict.

That bid was thwarted by much smaller company Oracle, which is a rather boring enterprise software company. Well, until now.

It’s no coincidence that Oracle’s CEO Larry Ellison has been publicly supportive of Trump. Considering the deal requires the approval of the U.S. government, it counted for a lot that Trump all but publicly endorsed the Oracle bid, calling Ellison a “tremendous guy” – high praise indeed when you are the competing bid and you need Trump’s approval to get the deal across the line.

TikTok has over 100 million monthly users in the U.S. with the largest age bracket being 18 – 24. Oracle sells enterprise software to corporates and institutions. It’s not the most natural marriage in town, but arranged marriages often aren’t.

With a 43-year history, Oracle’s largest deal was the acquisition of NetSuite in 2016 for just over $9bn. This will likely be higher than that, although all may not be what it seems.

The Wall Street Journal noted that the Oracle deal may not involve the transfer of assets or a core algorithm. Instead, Oracle may simply be the “tech partner” for TikTok in America.

Oracle’s share price is up 5.5% for the day at time of writing, although the US trading day is still young. Regardless, the market clearly has some appreciation for the deal with Bytedance. There are major outstanding details including price, actual deal structure and Oracle’s detailed strategy with the asset.

For now, we can at least count Microsoft and Walmart as being out of the running. Maybe Microsoft should just acquire Twitter instead…

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NVIDIA extends an Arm

NVIDIA has had a cracking year. Up 115% year to date, the company is now worth nearly $320bn and continues to impress tech geeks and investors alike. NVIDIA competes head-on with Advanced Micro Devices (AMD) which has “only” offered a share price return of 58% this year and is less than half the size ($150bn market cap).

Lockdown has been kind to NVIDIA, with significant growth in gaming and home computing in general. The company’s graphics technology has use far beyond gaming though, with its famous graphics processing units (GPUs) enjoying use in the professional market as well.

On the chips side of computers (rather than dedicated graphics cards), Intel has had a far less enjoyable year, with the share price down 19% and a market cap of $210bn.

Analysts wondered if Intel would ever move into the graphics card space, taking the fight to NVIDIA and AMD. Instead, the big move into a new vertical is coming from NVIDIA, which is buying a commanding position in the smartphone CPU market.

NVIDIA will acquire Arm from Japanese investment company Softbank, recently unmasked as the “whale” in the U.S. options market. The deal value is $40bn of which $21.5bn is payable in NVIDIA stock, with a further earn-out structure and a stake of 10% in the company being retained by Softbank.

Arm is a key supplier to Apple, for whom it licences an “instruction set architecture” – the most important intellectual property in chips. It also provides critical technology for many Chinese smartphone makers and AI firms.

Arm will continue to be headquartered in the UK where NVIDIA plans to build an “AI supercomputer for groundbreaking research” – I’m no tech geek, but that sounds groovy.

It’s an American company buying a UK company, but the Chinese are never far away and US – China relations may come to the fore once more. How will China view ownership by an American firm, NVIDIA?

The deal needs to be approved by Chinese regulators (among others), but the reality is that Chinese smartphone makers seem to have few alternatives. Arm’s products are market-leading and will take time to replace.

The most likely source would be the RISC-V foundation, of which Chinese companies like Alibaba and Huawei are members. It’s an open source project that originated in California (ironically). The Chinese government is also actively seeking an alternative, having raised nearly $30bn in 2019 to finance semiconductor companies.

Softbank’s share price jumped nearly 9% on the news. NVIDIA was up 5.7% at time of writing. Both sets of shareholders are clearly happy.

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