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Arm Divests Majority Stake in Chinese Operations for $775 Million

Arm announced it would sell majority ownership of its Chinese operations, partnering with investors to establish a joint venture that could give the country’s developers targeting everything from smartphones to televisions easier access to Arm’s critical intellectual property and boost Beijing’s bid to lessen its dependence on foreign chips.

Under the terms of the deal, the British company is divesting 51 percent of the business for $775.2 million. Arm, which was purchased by SoftBank for $32 billion two years ago, will continue pulling in licensing, royalty, software and services revenue from the new venture’s operations. Arm charges major multinationals such as Apple and Qualcomm access to its semiconductor blueprints, and its Chinese subsidiary did business with Huawei’s HiSilicon unit and Rockchip Technology, among others.

Last year, ARM’s intellectual property business in mainland China represented around a fifth of its total revenue. SoftBank estimates that 95 percent of chips designed in the country were based on ARM’s designs, which are used in 90 percent of mobile devices globally. Even though the country is the world’s largest semiconductor market and spends more on chip imports than oil, Chinese chip suppliers are relatively small players in the sector, making chips based on technology several generations behind American counterparts.

But the Chinese government is trying to narrow that technology gap and slash dependence on foreign chip makers as part of its national strategy, Made in China 2025. Beijing could be more motivated to boost self-sufficiency given the recent troubles for Chinese telecommunications equipment maker ZTE, which was left gasping for air after the United States imposed a crippling ban on its ability to import American chips. The company was given a surprise reprieve after the Trump administration replaced the ban with a $1 billion fine.

“Arm believes this joint venture, which will license Arm semiconductor technology to Chinese companies and locally develop Arm technology in China, will expand Arm's opportunities in the Chinese market,” said SoftBank in a statement. “The Chinese market is valuable and distinctive from the rest of the world.”

SoftBank would not identify the investors that had purchased the majority stake in the business. But financial news publications Nikkei and Reuters separately reported that the leading controlling shareholder is the investment firm Hou An, which is backed by the state-owned China Investment Corporation, among others.

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