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China could prove problematic for Arm once more, amid claims key staff from its local subsidiary have left to form a server chip design biz with government backing, and are eyeing up ex-colleagues to help.
Arm China is 49 percent owned by private equity investor Softbank, which still owns most of Arm in the rest of the world following the company’s IPO in New York last month.
The remainder of Arm China is owned by a consortium with ties to the Beijing government, and the operation caused headaches for its global parent when it appeared to go rogue under the leadership of former CEO Alan Wu, who was finally ousted last year.
Now several key ex-employees have started up a chip design outfit with backing from the local government in Shenzhen, and are looking to recruit more engineers from Arm China. The company, Borui Jingxin is said to be an Arm licensee which plans to design processors for servers, according to Bloomberg, which cites sources familiar with the matter.
This could spell trouble for Arm in light of the worsening relations between the US and China over trade and technology, especially as Washington is keen to curb Chinese access to compute power.
As the Brit chip designer pointed out in its SEC filing ahead of the IPO, the company is well aware that China poses a risk to its business, particularly if it should be further restricted or even prohibited from selling its intellectual property (IP) in China as a result of the so-called Chip Wars.
“Our concentration of revenue from the PRC [People’s Republic of China} market makes us particularly susceptible to economic and political risks affecting the PRC,” the filing reads. Almost a quarter of Arm’s total revenue comes via Arm China, which serves as a distribution channel for licensing its IP to local companies.
The highest performance designs in Arm’s Neoverse processor line-up already meets or exceeds the performance threshold to be restricted under US and UK export control regimes. If tighter restrictions are brought in, it could further limit what IP Arm can sell.
The Biden administration has been gradually imposing stricter and stricter trade restrictions on the sale of sensitive semiconductor technologies to the Middle Kingdom, with the latest set of updates to the rules under final review.
Arm and Softbank both declined to comment for this article.
Despite the restrictions, China recently confirmed its intent to build up its compute capacity to exceed 300 exaflops of aggregate compute power within the next two years, which is understood to be a 50 percent increase over the current capacity.
In a posting on WeChat [translated here], six Chinese government departments, including the Ministry of Industry and Information Technology and the Cyberspace Administration of China, issued the “Action Plan for the High-Quality Development of Computing Infrastructure,” proposing that compute infrastructure should exceed 300 exaflops by 2025.
IDC’s latest analyst predictions indicate that the accelerated server market in China hit $3.1 billion for the first half of 2023, an increase of 54 percent over the same period a year ago, and will grow more than five-fold to reach $16.4 billion by 2027. “Accelerated server” here typically means systems for AI processing fitted with GPUs.
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IDC China AI infrastructure analyst Du Yunlong said the current technical level of China’s local chip industry still lags behind that of other countries in the West, but this is gradually changing. Many companies have shifted from “international procurement” to “local procurement” or “self-development and self-use,” creating favorable conditions for the development of local chip technology, he said.
Meanwhile, Taiwanese chipmaker TSMC is still said to be waiting to hear if it will be granted an extension to the waiver it currently has that allows it to send US chipmaking equipment to factories it has in China, as its Korean rivals SK hynix and Samsung have.
It was announced this week that the two Korean companies are allowed to continue their chipmaking operations in China indefinitely. It isn’t clear if TSMC will be granted the same, or given another one-year extension to its existing waiver. ®
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