The agreement for Nvidia Corp (NASDAQ:NVDA) to acquire UK-based chipmaker Arm for $40 billion from Softbank could be a significant industry moves that will affect several players in the electronics industry, especially for chip vendors. For now, the biggest challenge to the deal is getting approval from China, according to managing director of CLSA Sebastian Hou.

$40 billion acquisition of Arm to result in a major industry shift

For the Chinese government, they want to avoid the nightmare of a US company acquiring Arm. This is because that will open an avenue for US government intervention in limiting Beijing’s access to technology. Currently, Arm, which designs chips, is the center smart device as it licenses its chip designs to tech companies across the globe. Most chip companies rely on Arm, which has positioned itself well in the market and with it coming under Nvidia, most manufacturers are in a dilemma regarding strategic choices they should make.

However, the proposed $40 billion acquisition deal is subject to regulatory approval from the UK, US, EU, and China. Although Arm has headquarters in the UK and Nvidia in the US, they have operations in China, the EU, and other locations. Although there are concerns from manufacturers on how the deal will change the chip landscape, Nvidia has promised to continue with the “open-licensing model and customer neutrality” that Arm was following.

Chinese tech companies wary about the acquisition of Arm

Currently, almost all smartphones available today utilize Arm technology. The chip designer has shipped over 180 billion chips running on its processor cores and other components globally. It is important to note that Chinese investors hold a majority interest in Arm’s Chinese operations. According to Softbank, the business accounted for around 20% of its revenue in the fiscal year that ended in March 2018.

Nvidia CEO Jensen Huang said that he was optimistic that Chinese regulators will approve the deal. Recently Global Times, which is aligned to Chinese government thinking, reported that if a US-owned Company acquires Arm, then Chinese tech giants will be disadvantaged.