Arm is reportedly working to sidestep its subsidiary, Arm China, by directly offering IP licenses to Chinese customers, which has already led to increased tension between the two companies, reports DigiTimes. While Arm has not confirmed this, the move would mark a departure from previous tactics in China and reflects strains in the relationship.
Arm Holdings formed Arm China in 2002 and until 2016 it was a wholly owned foreign enterprise. In 2016, Arm sold a 51% stake in the company to a local investor consortium consisting of state-controlled China Investment Corp. and the Silk Road Fund in a bid to address strict regulatory requirements, concerns over technology transfers, and develop China-specific products to better address one of the world's largest markets. As a result, Arm China became an intermediary earning a margin from sales of Arm's IP to customers in China.
Eventually, Arm and Arm China got into a conflict over control over Arm China and while the British company regained control over the rogue unit, Arm now wants to sell at least some of its products directly to customers in China, essentially sidestepping its Arm China joint venture. Financially, this could increase Arm's gross margins as it will not need to share profits.
Arm China operates independently in several areas, including R&D of new IP. It holds the rights to develop its own processor IP compatible with the Arm instruction set architecture. It can even license these designs back to Arm, giving it a unique position within the Arm ecosystem. In September 2024, Arm China introduced its first domestically developed Linglong D8/D6/D2graphics processors and the Linglong V510/V710 video processors. Arm China is reportedly forming a chiplet development team and exploring the general-purpose GPU business (read, GPUs for AI and HPC), moving further towards self-reliant commercialization.
Despite these tensions, Arm China continues to be a significant contributor to Arm's revenue. In the second quarter of 2024, Arm's total revenue reached $939 million with Arm China contributing $122.6 million, accounting for 13% of the total. This is not a 25% share once mentioned by Arm China's rogue CEO, but still a very significant part.
Interestingly, Arm China's attempt to develop more of its own products to land more business from Chinese entities reflects China's ambitions for semiconductor self-sufficiency to reduce dependence on foreign technology. Arm China relies on ISA developed by its parent company, so it still depends heavily on Arm Holdings.
What remains to be seen is whether Arm China could develop solutions that are restricted from being exported to China, such as Neoverse V-series CPU IP cores designed for datacenters and supercomputers. Keeping in mind that companies like Apple and Qualcomm could develop high-performance CPU cores while holding only instruction set licenses, it is not impossible to do. However, to achieve this, you need a lot of great engineers, and it remains to be seen whether Arm China has them right now. Then again, Alibaba's T-Head has developed its 128-core Yitian 710 server processor for cloud workloads and it turned out to be a quite powerful unit, so nothing is impossible.
