Commentary on Political Economy

Sunday 30 August 2020


Arm’s destiny is vital for Britain’s future

© Matt Kenyon

One of the more alluring arguments for Brexit was that it would allow Britain to shed outdated 20th-century European conceptions of pooled sovereignty like some raggedy snakeskin, emerging sleeker into a shinier new world. Farewell regional barriers, entangling treaties, overly restrictive rules and regulations! Hello the newly liberalised, digitally interconnected, global Britain!

Reality is already proving different to the promise. As the UK is rapidly discovering, the limitations on sovereignty in the 21st century are pressing in on the nation state, particularly on vital technology issues amid escalating tensions between the US and China. 

Giant American tech firms, including Google, Amazon and Microsoft, already control much of the world’s critical data, the lifeblood of a modern economy. Washington has just bullied Britain into reversing its decision to use the Chinese telecoms company Huawei to build its 5G network. And now Nvidia, the US company that has just overtaken Intel to become the world’s most valuable chipmaker, is in talks to snap up Arm, one of the precious few, globally relevant, British-based technology firms.

According to Hermann Hauser, the tech entrepreneur and investor who helped create Arm, any acquisition by Nvidia would result in the company’s headquarters shifting from Cambridge to the US, compromise its standing as an independent technology licenser and enable Washington to vet its customer list on grounds of national security. This would be another major step in turning Britain into an “American vassal state,” Mr Hauser thundered in a letter to the FT last week.

In truth, Britain lost most of its control over Arm when the company was bought by Japan’s SoftBank in 2016 for £24bn. Fund managers in the City of London have never been savvy at valuing tech companies. And Masayoshi Son, SoftBank’s founder, whose business is to arbitrage the differences in valuations between public and private markets, spied a bargain. He paid a 43 per cent premium to the market for a company that he said could be worth more than Google.

Arm’s technology is ubiquitous yet invisible. As a computer chip designer, it is one of the world’s most valuable intellectual property companies, boasting licences with 500 companies, from Apple to Huawei. Between all smartphones, connected cars and other electronics there are an average of 20 Arm-designed chips in use for every person in the world

To mollify some of Arm’s outraged supporters at the time of acquisition, Mr Son promised three things. He pledged to double the number of Arm’s employees in Cambridge to 3,500 by 2021, leave management mostly to its own devices and ensure the company’s neutrality as a licenser. Even the doubters acknowledge that Mr Son has so far been as good as his word.

Arm executives say that being a private company has been something of a liberation, allowing them to escape the tyranny of quarterly reporting. They have been encouraged to think longer term and make bigger bets on future trends. Given that Arm technology is embedded in so many devices, Mr Son took to calling the company his “crystal ball”, the centrepiece of his vast technology investment portfolio. To that end, he enabled Arm to invest heavily in designing chips for the Internet of Things even though that has significantly diluted the company’s earnings.

Given pressures elsewhere in Mr Son’s empire as a result of the near-collapse of WeWork and his substantial commitment to Uber, he is now ready to offload Arm earlier than originally planned to generate cash. He recently confirmed that he would either sell the business, in whole or part, or return it to the stock market. 

There was a time when a Conservative British government, which cheered Mr Son’s original acquisition of Arm, would have stood on the sidelines and left the market to determine Arm’s fate. But we live in a different era now. 

If national sovereignty in the 20th century was magnified by military hardware — tanks, battleships and nuclear missiles — it is increasingly empowered today by civilian software — intellectual property, data and computer code. Ironically, the EU appears to have grasped the urgency of reasserting “technological sovereignty” faster than Britain. Ursula von der Leyen, the EU commission president, has made it one of the defining themes of her term in office.

Dominic Cummings, the UK prime minister’s chief adviser, has been calling for a more activist industrial strategy. He has been championing the creation of a British Arpa (Advanced Research Projects Agency), hoping to emulate the success of the US innovation agency formed at the height of the Cold War that helped spur the development of the internet. The government has also committed $500m to salvaging OneWeb, the collapsed satellite operator. 

Arm is a far more significant candidate for state support given its commercial success and centrality to the British tech sector. The government should do everything in its powers to encourage Arm’s return to the public market, perhaps with a joint listing in London, Amsterdam, New York or even Shanghai, as Mr Hauser suggests, and defend its independence. Britain’s claims to be a sovereign nation in a digital world will further evaporate if it fails.

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