The report is based on the strategic analysis of Nvidia who have recently acquired arm group in order to enhance their business within the market. Nvidia is one of the known Silicon Valley chip maker it is known as the fastest growing company whose chiefs are best known for making video games by rendering the images (About NVIDIA Corporation, 2022). On the other hand Arm limited is a British semiconductor and software designing company which is based from Cambridge, United Kingdom. The primary business into which the organization is of developing and designing Arm processors. Along with it the company produce white range of microprocessor course almost for every application markets and take care of every market performances, cause requirements and power, of all the application markets (ARM: About, 2022). Some of the well-known product of microprocessors are security IP, physical IP, multimedia processor, CPUs, etc.
In September 2020 Nvidia has approached Arm with a stock value of 40 billion dollar which makes it one of the most expensive deal ever among the chip companies. The offer that Nvidia has made to the Soft Bank which is a Japan based company which is a conglomerate and owned the British based company ARM limited since 2016. Later though the bid has went up to 60 billion dollar though the deal has encountered several setbacks which include the lawsuit problem from Federal Trade Commission which has blocked the acquisition and other regulatory challenges has stopped the deal to become fulfilled. But later the deal do take place where the organization has almost achieve the deal in 2020 (NVIDIA to Acquire Arm for $40 Billion, Creating World’s Premier Computing Company for the Age of AI, 2022).
The purpose of the report is to conduct a detailed strategic analysis for that a detailed external and internal analysis will be conducted using various strategic management tools and techniques. Followed by this the acquisition strategy will be evaluated using the SAF and TOWS model.
One of the important factor that impact the semiconductor market from operating within the market is the political factor. There is a political stability in the semi-conductor specialized sector within the country, also the level of corruption in the technology sector is well regulated. Also the bureaucracy and the interference within the semiconductor specialized industry by the government are limited which provide the industry to grow, progress and make their own decision. That tax rates and other incentives are also nominal which help the company to grow this acts as an opportunity for the industry (Prasannakumar et al. 2020).
There are certain macro environment and factors which impact the organization immensely like the inflation rate, savings rate, foreign exchange rate, and economics cycle, also the other factors like the aggregate demand within the market regarding the product and the investment rate within the economy where the businesses operating also impacts the business process. Along with this economical factor there is micro-economical factor which also impact semiconductor industry like the purchasing power of the consumers are low, existence of competitive norms within the market, unemployment rate within the market, and also the labor cost that the company has to bare has the direct impact upon the organizational process this acts as an threat for the industry (Prasannakumar et al. 2020).
Another important aspects that place at crucial behind the success of each and every organization is the social factor. Similarly societies culture and way of doing things also impact the organization culture, along with it the shared beliefs and attitude of the peoples within the society also plays a great role within the semiconductor industry has to consider in order to understand the customers of the given market where they want to operate and design the marketing messages for the semiconductor specialize industry customer accordingly. The country has a well spread demographic group of people who belongs from several income group and skills level according to which the organization need to do the segmentation and targeting. Also the educational level which is high also plays the important part to understand the standard of product offered this acts as an opportunity for the industry (Prasannakumar et al. 2020).
Nvidia belongs from a technology based company which develops microchips to offer to their customers within the market as a result, technology plaza important role in this industrial across the world. As a result sum of the factors which impacts semi-conductor chip manufacturing industry is the technology advancement by the competitors within the market, though the market that the company is operating as customer base who are well aware of the technology advancement. Some of the other factors which also plays are important role like the cost structure increase in the semiconductor specialized industry, the rate of technological diffusion and also the impact of the value chain structure this acts as an opportunity for the industry (Prasannakumar et al. 2020).
Another important factor that need to be followed by the organization order to get suitable to the country their working in is the environment and factor of that country. Different markets are different norms or environmental standards which can impact the profitability of the organization which need to be followed. There are loss like environment act UK which the company need to abide and control their production process accordingly such that the waste products this acts as a threat for the industry as it produce different types of harmful waste (Prasannakumar et al. 2020).
Another factor that need to be considered for operating business within United Kingdom is the legal framework and institutions of the country that need to be followed by the organisation for operating within the country. Similarly semi-conductor chip manufacturing industry also need to follow certain legal aspects associated with the country like following anti-trust law in semiconductor specialized industry, intellectual property law to protect their products and brand from being copied within the market, also there are loss regarding the employees and health and safety within the organization research some common laws that need to be followed (Prasannakumar et al. 2020). Also as the company sales its product through online mode the need to be consumer protection and e-commerce law which need to be followed along with the data protection act all this acts as a threat for the insustry (Appendix 1).
Porter’s Five Forces
The semiconductor chip manufacturing industry is fairly difficult to achieve an economies of scale. The product differentiation is also very strong in this type of industry and strong emphasis has been put upon advertising and customer service as well. Also the capital requirement for entering in this industry is high though the distribution network access is easy. The government policies regarding the licensing and legal requirements aspect in nature with the company need to fulfill before comments in their business this acts as an opportunity for the industry (Wang and Lin 2021).
There are very few number of players who are already operating in the semiconductor industry providing similar solution to the customers as others are offering. Competition is relatively less in this industry but every organization holds a large market. But the attractiveness of this market is that it grows at a rapid pace which is the positive sign for the organization as the competitors are less and the market is monopolistic. The fixed cost are higher within this industry which helps the organization to push full capacity which means that the organization can reduced their price when the demand slacks this acts as an opportunity for the industry (Wang and Lin 2021).
There are number of suppliers within the semiconductor industry is operating which is lot more than the number of firms who are producing the products in the market. Which means that the customers has a limited number of options to choose from there for they doesn’t have much control over the bargaining. Though the product differentiation within the market is high as a result, there is very few alternatives for a particular product for the customers. This all factors weakens the bargaining power of the customer within the market this acts as an opportunity for the industry (Wang and Lin 2021).
There are number of suppliers within the semiconductor industry which is lot more than the number of firms who are producing the products in the market. This means that the supplier has low power to control the price within the market due to the lack of availability of alternative industries as a result the bargaining power of the suppliers are weaker in the market. The other factors which has weakens the bargaining power of the suppliers within the market is lie the raw material that the suppliers provide are standardized and a less differentiated from each other as a result the switching cost is low which help and media corporation to switch suppliers that makes the bargaining power much weaker this acts as an opportunity for the industry (Wang and Lin 2021).
There is very few substitutes available within the market of the products that was offered similar product to the customer like semiconductor industry provides. The companies which provides substitutes are very small in size and earn a low profit which means that there is no ceiling on the maximum profit that the firm earn in the industry with low price offering. This factor is a threat for the substitute products as a weaker force within the industry (Wang and Lin 2021). There are very few substitutes available within the industry but they offer a good quality high quality product at a more expensive due to which large organization like Nvidia Corporations gain competitive advantage by selling their product at a much lower price than the substitutes this acts as an opportunity for the industry (Appendix 2).
Nvidia corporations have 50 offices spread worldwide from where they operate their business across the world (NVIDIA Locations & Regional Offices, 2022). Though organization doesn’t have their own manufacturing plant rather they use third party hardware manufacture to build their GPU chips for them (Nvidia Company Belongs To Which Country?-Everything About Nvidia – TechnoZive, 2022).
Nvidia always looks for a skillful employees within the organization as a result they has a challenging recruitment process where they try to find the most talented passionate and motivated people in their team. The organization has a total of 18100 people working for them across the world in different locations.
The organization has a total equity of 16.9 billion USD, in the year 2020 to the revenue was recorded 26.91 billion which has gone up by 61% from 16.9 billion USD a year ago. Similarly the GAAP earning for diluted share has gone up to 123% from 1.73 dollar to 3.85 dollar (NVIDIA Corporation – Financial Reports, 2022).
Nvidia has a strong intellectual property rules followed within the organization as a result they have done trademark and patent on all their logos and brands such as Digital Vibrance Control, Nvidia’s own logo, and GeForce (Legal Info, 2022).
Nvidia is one of the well-known company across the world and has attended the toppest position with recommendable reputation across the market and is one of the company with excellent score within the market for a longer period of time. The company is known as one of the America’s best place to work according to the job portal reviews also its states that the company has a good work culture provide its employees with various type of benefits and has a high retention rate. Important factor which has played a crucial role in building image within the market is that there socially responsible and contributes towards various social causes like 100 of researchers were provided with funds, providing help to the leading health care organization and government worldwide to fight with the covid-19 disease (NVIDIA, Samsung and Garmin are Most Reputable Technology Companies in the United States, 2022).
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Secondary activities |
Firm infrastructure Quality management, accounting, planning and strategic management. |
Margin |
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Human resource management Effective human resource management Analysing hiring and training Providing support, motivation, commitment, and skills. |
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Technology development Technological integration in production, distribution, marketing and human resource. Process and product technological development activities. |
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Procurement Strong partnership with suppliers Optimizing inbound, outbound and operational chain. |
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Primary activities |
Inbound logistics Lean supply Integration with suppliers |
Operations Improving productivity Maximising efficiency Competitive advantage. |
Outbound logistics Establishedl distribution network |
Marketing and sales Creating differentiation point. |
Service Pre and Post sales services to develop customer loyalty. |
(Lustig, Sahasrabuddhe and Giroux 2019)
One of the important resource of the organization is the financial resources which is highly valuable as this help in media in investing in other companies are acquiring other companies like Arm limited. Organization have strong financial position within the market which is very rare and the financial resources of Nvidia is costly to be imitable, this helps the organization to gain a comparative advantage within the market and helps in combating the threats.
The employees are one of the biggest asset of this type of organization which is valuable for the organization to grow. The employees work within the organization rare resources as their highly trained and skillful and competent for doing their work for the organization. This type of skillful employees are very hard to get to me table by other organizations within the market.
The intellectual property and the patent are one of the important element of this type of organization which protects their brand and product from getting copied by other players within the market which make heater valuable, rare, and inimitable (Mosharrof 2020).
Distribution network of the organization plays important and valuable role which is rare in nature and cannot be easily emitted by any other competitors within the market and important for the organization progress to gain comparative advantage within the market.
The research and development wing of the organization is very much important as it continuously develop new product which will attract customer and help the organization to differentiate their product from the other computers within the market (Mosharrof 2020) (Appendix 3).
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Strengths (S) S1 Strong distribution network S2 Low cost structure S3 Strong financial position S4 Highly skilled labour S5 Strong presence on social media |
Weaknesses (W) W1 Rental charges W2 low amount spend on R&D W3 High employee turnover W4 Liquidity problem |
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Opportunities (O) O1 Internet users are increasing. O2 Social Media users are increasing O3 Government is offering subsidiary O4 Increased purchasing power of customers. O5 Growth in environment friendly product. |
SO Strategic options SO1 Increase marketing to attract customers SO2 Becoming the giant in AI by acquisition of ARM. SO3 Marketing the product at low price SO4 Entering in the new markets |
WO Strategic options WO1 Buying own property to reduce rent cost. WO2 increasing payrolls and motivating employees to reduce turnover rate. |
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Threats (T) T1 Threat of new entrants T2 Devaluation of exchange rate T3 Competition |
ST Strategic options ST1 Using strong distribution to gain competitive advantage. ST2 Investing in intellectual property. ST3 Enhance innovation |
WT Strategic options WT1 Increase fund of Research and Development wing. WT2 Provide incentive, employee engagement, and better work environment. |
(Djalel 2021) (Appendix 4).
The risk score provides the company with a relevant measures in order to identify the attractiveness of the stock. The risk score falls between 0 to 10 where 0 signifies a high risk is associated with the stock of the company whereas 10 signifies that the company has low risk. Nvidia Corporation holds a risk score of 6.00 which states that the company holds a relatively moderate risk associated. In the market the risk score of the competitors are higher than Nvidia Corporation which states that the competitors stocks risk are much higher in respect to the risk associated with Nvidia Corp (NVIDIA Corp.: Risk analysis (NVDA | USA | Semiconductors) – Infront Analytics, 2022) (Appendix 5).
Another important aspect which is needed to be understand before understanding the acceptability of the company is the return on investment that the company is providing to its customers who are investing in their stocks. Nvidia Corporation written on equity is 42.99% which is higher than the average of semiconductor and general industry of 16.89%. On the other hand in media tape to equity ratio is 0.4113 (NVIDIA Debt to Equity Ratio, 2022) which is considered as a healthy ratio for investing and getting good return and the current ratio is 7.14 is ideal as it shows that a company has 7 times more current assets over the current liabilities and can repay the depth at any time (NVDA | Current Ratio Chart and History 2009-2022 | DiscoverCI, 2022) (Appendix 6).
The mend low’s matrix will help to understand the reaction of the proposed acquisition of Arm limited by Nvidia Corporation.
The management has a clever client behind this acquisition process both the management understood that this acquisition will be result it in a global leader in AI. There will be no such the competitors will be existing within the market who can touch Nvidia after this application gets complete. The management has a long term target in-between 2025 to 2030 where AI is expected to get a boost in the market and adding almost 13 to 50 trillion to the global economic activity. The organization can enter into the market of mobile telecommunication and 5G internet which will help in increasing the domain and reach of the organization across the world (Kindig 2022).
The 40 billion acquisition of air m by Nvidia is will give the organization huge boost to the company as well as will impact positively account the shares of the company within the market which give the shareholders of the organization with a positive believe that they will earn more profit out of the shareholdings they possess. The number of shares to be issued after the acquisition is 44.3 million which will increase the share outstanding by 7%. The shareholders from every domain related with the organization starting from government to come on shareholders are looking at the deal in order to see the rise of the new giant within the industry after this acquisition take place (Krewell 2022).
The acquisition of Arm Company by Nvidia Corporation with a stock value of 40 billion dollar which makes it one of the most expensive deal ever among the chip companies. The offer that Nvidia has made to the Soft Bank which is a Japan based company which is a conglomerate and owned the British based company ARM limited since 2016. Arm and Nvidia collaboration with the synergies they have can health organization to reach in a different level in the financial market when the expertise of Nvidia who are more focus on silicon and system performance matches with the Arm licensees which care about the performance which includes data center, high-end smartphone, networking, telecommunication, and computer based systems. It has been revealed by the management of Nvidia they will not take depth for this acquisition rather they will provide 21.5 billion in common stock and 12 billion in cash for the deal. The number of shares to be issued after the acquisition is 44.3 million which will increase the share outstanding by 7%. Where AMS employee will get a 1.5 million in Nvidia stocks at the time of closing where are additional 5 billion in cash and commerce in the subject to specific performances of the Arm group (Krewell 2022).
According to the proposed acquisition of Arm Company by Nvidia Corporation it has been determine that the acquisition is mainly based on the people skills and the technology that air m will bring on the board in order to build energy efficient ships and to grow in the market of semiconductor chip by offering differentiated product to the customers. As a result the employees of both organization will collaboratively work together in order to build a new effective product within the market which will bring the expertise of both the company to provide a better solution to the customer at a more affordable rate in order to gain a competitive advantage over other players within the market (NVIDIA buys Arm – a good fit, but with points of friction and potential consumer ramifications, 2022).
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