Arm seeks to enter the Chinese market directly, eliminating ArmChina as an intermediary.
Arm has no interest in sharing profits with Arm China.
Semiconductor company Arm is considering a new strategy that would allow it to offer intellectual property licenses directly to customers in China, bypassing its subsidiary Arm China. This change arises in the context of ongoing tensions that have existed between the British parent company and its subsidiary since the latter was established in 2002, which took a significant turn in 2016 when more than 50% of the shares were acquired by a consortium of Chinese investors. This transaction was expected to facilitate compliance with local regulations and better tailor Arm's products to the needs of the Chinese market.
Since then, Arm China has operated as an intermediary, generating a margin by licensing Arm's intellectual property to customers in China. However, the relationship between Arm and its subsidiary has been problematic, particularly around issues of control and management of the division.
With the intention of increasing its profit margins by avoiding sharing profits with Arm China, the British company is looking to offer its services directly to clients in the country. Despite the friction, Arm China continues to represent a significant part of the company's overall revenue; in the second quarter of 2024, it contributed $122.6 million, accounting for approximately 13% of the company's total revenue.
Arm China has also been advancing in the development of its own processor intellectual property. In September 2024, it launched its Linglong graphics and video processors, which were nationally approved. Additionally, it has been exploring general-purpose GPUs for artificial intelligence and high-performance computing, aligning with China’s push for semiconductor self-sufficiency, especially amid geopolitical tensions and restrictions on imports and exports.
In a letter to shareholders following the recent quarterly earnings report, Arm's CEO, Rene Haas, and CFO, Jason Child, mentioned that they anticipate the migration of artificial intelligence from the cloud to edge devices will drive greater demand for device-based computing, which will benefit Arm by increasing royalty revenues per chip.
