Backdoor for western chip technology Control of arm’s China business transferred to Chinese investors

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A new joint venture located in Shenzhen will take over arm's previous licensing business in China.

arm will cede control of its Chinese operations to a new joint venture involving itself and Chinese investors. The joint venture began operations in April and plans for an IPO which might help reduce arm‘s owner Softbank's 147 billion dollar debt.

The new joint venture, located in the southern Chinese city of Shenzhen, is called „Arm mini China“ and 51% owned by Chinese investors with arm controlling the remaining 49%. It will be responsible for handling all the licensing and royalties business with chinese companies.

According to sources close to the company the so called Hou An Innovation Fund will be a key stakeholder in the venture, other investors include Chinese sovereign wealth fund China Investment Corporation, the Beijing-owned Silk Road Fund, Singaporean sovereign wealth fund Temasek Holdings, Shenzhen government-owned conglomerate Shum Yip Group and Hopu Investment Management, which is led by Fang Fenglei, one of Chinas most prominent bankers.

There is no information available if the pricing structure of the JV will be different from arm itself and how many employees will be transferred to it. Analysts estimate that arm‘s revenue with chinese customers like Huawei and MediaTek exceeded 400 Mio. Dollar in fiscal year 2017. According to arm the Chinese market could become the company's largest one within five years from now.

The creation of Arm mini China reduces Chinas reliance on western chip suppliers like Intel or Qualcomm and gain control of sensitive chip technologies that may impact national security issues. A number of semiconductor deals involving Chinese funds have been blocked by the U.S. government due to security reasons. Recently the Chinese smartphone supplier ZTE was banned from using US chips delivered by Qualcomm and other semiconductor suppliers.

Not only these developments have convinced the chinese government to localize China's chip supply chain as quickly as possible. In 2017 the chinese chip maker Zhaoxin disclosed a self made x86 CPU based on a license aquired by taiwanese semiconductor supplier VIA technologies, which owns a cross license agreement with x86 inventor Intel since 1998.

Japan's SoftBank bought arm in a 32 billion dollar deal in 2016, nevertheless the company is loaded with a heavy 147 billion dollar debt. A speedy IPO of arm mini China could reduce the debt significally.