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June, 2018

SoftBank hands China the keys to top IC technology

Original article: The Wall Street Journal

Japan's SoftBank, one of the world's foremost technology investors, will sell a 51% stake in the China business of UK chip designer ARM for $775 million to a consortium of Chinese investors. Leading the consortium is Beijing-based Hopu Investment Management Co., which is backed by sovereign-wealth fund China Investment Corp. and Silk Road Fund.

Analysis:

Frustrated by the Trump administration's crackdown on Chinese tech investment, Beijing is taking its business elsewhere. SoftBank is more than happy to sell a majority stake in leading British chipmaker ARM, even though some observers say the selling price is low. SoftBank acquired ARM in 2016 for $32 billion. 


ARM is a heavyweight in the global IC industry. As Japan's Nikkei noted in a June 12 report, 90% of the world's mobile devices incorporate the British firm's technology. To develop chipsets for connected devices, the world's preeminent consumer electronics makers (Apple, Samsung, and Huawei, for instance) and chipmakers themselves (Qualcomm, Broadcom and MediaTek) must license ARM's technology, Nikkei points out. ARM earns royalties from developer which sell its chips. 


In a June 20 statement, SoftBank said it sold a 51% stake in ARM to Chinese investors because it would expand ARM's overall opportunities in the Chinese market. "By relinquishing control and taking a reduced royalty by way of dilution, the joint venture could locally license ARM semiconductor technology to Chinese companies and locally develop ARM technology in China," the statement said. 


The local joint venture will produce chips that are sufficiently secure for China's needs, analysts say. Beijing has been jittery about foreign IC technology ever since former CIA contractor Edward Snowden revealed widespread spying on foreign governments by the U.S.'s National Security Agency. Because semiconductors serve as the computing brains of electronic devices from smartphones and computers to sophisticated satellites and weapons systems, compromising of their security can be devastating. Semiconductors infected with malware could facilitate spying activities or large-scale cyber attacks that sabotage swaths of digital infrastructure. 


ARM is developing its China business in line with Beijing's ambitions for semiconductor self-sufficiency, says Jane Yeh, an industry analyst at the Taipei-based Market Intelligence & Consulting Institute, a semi-governmental research firm. "China's information security requirements are an important factor in ARM's decision," she says. Further, the spin-off of Softbank's majority stake in the British chipmaker "is a good way for ARM to sell its intellectual property in China." She adds that a joint venture will have access to business opportunities in China a wholly foreign-owned enterprise does not, such as government and military projects.


Meanwhile, if SoftBank had not sold off its majority stake in ARM to Chinese investors, the British chipmaker would have struggled to participate in Beijing's controversial Made In 2025 initiative, which aims to swiftly transform China into an advanced manufacturing powerhouse. Thanks to its joint venture, ARM now qualifies to participate in the policy, which offers subsidies and other perks to firms which manufacture high-tech products like semiconductors in China. 

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