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Power struggle at Arm might mean giving China the elbow

A tangled power struggle at chip champion Arm could threaten its vital China business.

The UK company announced Tuesday that it had removed the CEO of its China operation, Allen Wu, for not disclosing conflicts of interest that "endangered" the company.

The company did not specify the details but said it was acting on whistleblower complaints. It appointed two executives, Ken Phua and Phil Tang, as interim co-CEOs.

But Arm China, a JV between the parent company and several others, has described the removal as invalid because no legitimate board meeting had been convened.

It said in a WeChat post on Wednesday that Wu remained CEO, operations were continuing normally and it was considering legal action over the allegations.

It also said Phil Tang had been fired on May 26 for "serious violations."

However, Arm's UK spokesperson Phil Hughes said the company had found no evidence of violations by Tang, who had been reinstated, Bloomberg reported.

Arm, whose architecture supports 90% of all smartphones worldwide, is a unit of SoftBank, acquired for £24 billion (US$32 billion) in one of Masayoshi Son's biggest-ever acquisitions in 2016.

Son restructured the China operation in 2018, reducing its stake to 49%, with the remaining 51% shared by several groups including the state-owned China Investment Corporation, China's sovereign wealth fund the Silk Road Fund and Singapore's Temasek Holdings.

Wu, who has been with Arm since 2004, was appointed chairman and CEO of Arm China in 2018.

Specifics are not clear, but the conflict is almost certainly linked to the US campaign against Huawei – one of Arm China's biggest customers.

Wu has publicly expressed support for Huawei. He told a media conference last September that Arm China had "never interrupted supply" to Huawei chip unit Hisilicon and would continue to support Huawei.

As a British firm, it is not directly impacted by the Commerce Department entity list that bans US firms from supplying Huawei. But as Alex Capri, a research fellow at the Hinrich Foundation, told Bloomberg, Arm has a huge US exposure.

"What could make this really messy is that the US could start to put pressure on Arm to cut off its Chinese entity," he said.

For its part, the China unit shows signs of wanting to carve out its own path. Its website describes its role as "combining the needs of the Chinese market to independently develop IP and standards based on Arm technology."

So the removal of Allen Wu looks like the parent company trying to rein in its wayward JV before it comes under some friendly persuasion from the US.

But it can be certain that Beijing will not remain on the sidelines if Washington further threatens its chip supplies.

The Arm standoff may end quietly in a day or two. Or it could continue for months, dragging the UK company through the Chinese courts until forced to choose between the world's two biggest economies.

— Robert Clark, contributing editor, special to Light Reading

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