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China tech

Arm China asks Beijing to intervene in row with UK parent

SoftBank-owned Arm insists local unit's chief was 'legally' removed

Arm China has called on the government to aid it in its spat with Cambridge-based parent Arm. (Photo courtesy of ARM)

TAIPEI -- SoftBank-owned U.K. chip designer Arm and its Chinese unit are both appealing to Beijing for support in the boardroom spat between the two companies, which has heated up amid public accusations of harassment and "harmful actions."

The companies have been locked in a bitter fight since May over Arm's attempted dismissal of Arm China CEO and Chairman Allen Wu over allegations of irregularities and conflicts of interests.

Arm China maintains Wu is still in charge of the unit, and on Tuesday publicly called on Beijing for "protection" from Arm.

"Arm China is a Chinese-controlled joint venture that should abide by the Chinese laws and fulfill the social responsibility in China" the company said in a statement posted on its official WeChat account. "We plead with the government to pay attention to the turbulence Arm China is facing now, and intervene to protect this strategic asset." The statement was signed by over 200 employees and also posted Weibo, the Chinese version of Twitter.

Cambridge-based Arm responded with a strongly worded statement of its own in an email to the Nikkei Asian Review: "The Arm China board is working closely with government authorities to peacefully resolve the current issue and ensure Allen Wu is unable to commit further harmful or disruptive actions against Arm China employees and partners moving forward."

Arm said Wu has refused to step down despite a "legally valid resolution" to remove him from the company, and further accused him of putting semiconductor innovation in China at risk by blocking communication and support for Arm's Chinese clients.

Arm has four directly appointed board of directors out of the nine in Arm China's boardroom.

Wu could not immediately be reached for comment on Arm's allegations.

Arm China, which plays a strategic role in Beijing's attempt to build a self-reliant semiconductor industry, is 51% owned by Chinese interests. Arm controls the remaining 49%. In its statement on Tuesday, Arm China accused its parent and Hopu Investment Management, one of the Chinese investors, of "harassing" its employees and coercing clients in an attempt to replace Wu.

The decision by both sides to appeal for Beijing's intervention could further politicize the dispute -- and raise the stakes for Arm and SoftBank.

Arm's No. 1 customer in China is Huawei, the technology group at the center of a U.S. crackdown. This relationship has put Arm in an awkward position as tensions between the two countries heats up. Although Arm is based in the U.K, it has thousands of employees and significant research and development capabilities in the U.S.

Arm temporarily suspended its service to Huawei last year after the Chinese tech giant was blacklisted by Washington. More recently, the U.K government made a policy U-turn this month and decided to block Huawei from its next generation 5G network. It further demanded all carriers remove the company's gear from existing networks by 2027.

SoftBank, meanwhile, has been exploring the sale or relisting of the British chip designer as the Japanese company looks to shore up its own troubled finances. SoftBank bought Arm for $32 billion in 2016. Two year later, it sold a 51% of stake in the China unit to Beijing-backed investors, and allowed the Chinese unit to take over all of Arm's licenses, royalty business, marketing and customer support in China.

SoftBank has stayed quiet about the recent clashes between the two Arms. Arm China, however, has warned that if the spat is not resolved, it will harm Arm's reputation in China, hinting at possible ramifications for any sale or listing of the U.K. company.

Arm is a crucial player in the global tech industry. Its intellectual property dominates the world's mobile chips and is essential to the most prominent users and manufacturers of chips, including Apple, Qualcomm, Samsung, Huawei, Taiwan Semiconductor Manufacturing Co. and MediaTek.

In its statement, Arm China stressed its importance to both Arm and Beijing. The unit said its revenue grew more than 50% in 2019 and it already accounts for as much as 27% of Arm's total licensing business globally.

"Arm China is devoted to empowering the foundation of China's semiconductor industry. This joint venture plays a strategic role in China's chip industry in the past two years amid the dynamics of the international chip competition landscape," it added.

Regarding the spat over Wu, Arm China claimed that "Hopu and some of Arm's board of directors even started to send people frequently contacting the joint venture's clients. They even threatened to revise or cancel the existing contracts with the joint venture. Moreover, some of the board of directors harassed and threatened employees at the joint venture."

Hopu is a well-known Chinese venture capital firm. Arm's other Chinese investors include state-backed entities such as the Silk Road Fund, sovereign wealth fund China Investment Corp. and Shenzhen government-owned conglomerate Shum Yip Group.

Nikkei also reached out to several of Hopu's executives but has yet to receive any responses.

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