February 17, 2023
By Jane Lanhee Lee and Kane Wu
The
logo of SoftBank Group Corp is displayed at SoftBank World 2017 conference in
Tokyo, Japan, July 20, 2017. REUTERS/Issei Kato/File Photo
OAKLAND, Calif./HONG KONG, Feb 16 (Reuters) - Chip technology
firm Arm China suffered a 90% drop in profit last year despite revenue rising
more than 30% during the first year management appointed by SoftBank Group
Corp (9984.T) took over, according to a financial
document reviewed by Reuters.
The company, set up in 2018 as a joint venture of British chip
technology firm Arm Ltd, laid off nearly 100 employees last week, most of them
engineers, Reuters
reported exclusively on Friday.
Arm technology powers most global smartphones and the company
counts Apple Inc (AAPL.O) and Qualcomm Inc (QCOM.O) as
customers.
SoftBank had said early last year it was aiming to take Arm Ltd
public by the end of March; last week Arm's CEO
told Reuters the firm was committed to a listing this year.
The China business is the exclusive distributor of Arm chip
technology in China and develops and sells its own chip designs based on Arm.
It accounts for 20%-25% of Arm Ltd's global revenue, according to two sources
familiar with the situation.
One of the sources said the drop in Arm China's profit would not
have a financial impact on Arm Ltd, whose royalty and licensing fee payments
come before profit is calculated. In 2021, the China business paid Arm about
$500 million, the two sources said. It is not clear how much Arm Ltd made from
China last year.
“The Arm Ltd IP business part of Arm China is performing very
well and we are positioned for continued growth going forward. The new
management team has quickly restored confidence with our China ecosystem, and
we are pleased to have the previous management issues well behind us as we
expand Arm technology into the China market,” said Phil Hughes, Arm's vice
president of external communications, in a prepared statement.
SoftBank and Arm China did not respond to requests for comment.
Arm China's net profit plunged to $3.2 million last year from
$79.2 million in 2021, while revenue grew to nearly $890 million last year from
$665 million the year before, according to the company's 2022 unaudited
earnings statement, seen by Reuters and confirmed by another independent
source.
According to the statement's footnote there is a $37 million
loss in foreign exchange in 2022, compared with a gain of $9 million the
previous year.
Both sources declined to be identified as the information was
confidential.
Arm Ltd has been considered one of the better performing assets
at SoftBank, where its startup investment Vision Fund has had four straight
quarters of losses. The bulk of the loss at the fund in the latest
reported quarter came from a steep decline in the valuation of investments
in unlisted companies, but listed portfolio companies, Indonesian ride-hailing
company Goto Gojek Tokopedia PT (GOTO.JK), South
Korean e-commerce platform Coupang Inc (CPNG.N) and
workspace provider WeWork Inc (WE.N) also
contributed to the loss.
ARM CHINA'S
STRUGGLES
Arm China has been a challenging business for SoftBank to
navigate. Set up in 2018 with longtime Arm executive Allen Wu as CEO, SoftBank
allowed Chinese funds together to take a majority stake in the joint venture.
Wu is credited with expanding the China business, according to
two sources familiar with the company. But the relationship between Wu and some
of the major shareholders soured over conflict of interest issues around Wu's
own investment fund. That turned into a two-year public battle as SoftBank
worked to oust Wu.
To shield Arm Ltd from the China troubles as it aimed to take
Arm public, SoftBank last March transferred Arm Ltd's stake in the joint
venture into a separate special-purpose vehicle, according to two sources with
knowledge of the matter. One of them said, however, that the official Chinese
records still show Arm Ltd as a shareholder.
By late April 2022, SoftBank pushed out Wu from Arm China by
physically and digitally blocking him, and put in
place two CEOs, Eric Chen from SoftBank and Liu Renchen, vice dean at the
Research Institute of Tsinghua University in Shenzhen.
Reporting by Jane Lanhee Lee in Oakland, Calif., and Kane Wu in
Hong Kong Additional reporting by Josh Horwitz in Shanghai Editing by Kenneth
Li, Gerry Doyle and Matthew Lewis
https://www.reuters.com/technology/softbanks-arm-china-profit-drops-over-90-2022-document-2023-02-16/
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