Analysis: Arm IPO filing reveals depth of Chinese risk

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The filing for an IPO in intellectual property licensor Arm has revealed details of problematic relations in China and risks to its continued business there.

www.eenewsanalog.com/, Aug. 22, 2023 – 

A key factor is that after Arm stages its IPO it will still be SoftBank Group that retains the largest stake in Arm Technology (China) Co. Ltd. which is the gateway to Arm's China revenues. And SoftBank Group and Arm together only hold a 48 percent interest in the Arm China.

Several years ago, Arm – presumably under pressure from the government of the People's Republic of China – opted to cease having a wholly- or majority-owned subsidiary to manage licensing and royalty collection. In a series of manoeuvres Arm was moved into a minority ownership position in Arm Technology (China) Co. Ltd.

The filing does not address why Arm made this change under SoftBank ownership but in effect Arm China became a special customer with the right to sub-license Arm's intellectual property in China and collect payments and royalties. After that move was made Arm had a series of problems in China although these were apparently resolved in 2022 (see ARM moves to regain control in China, to clear path to IPO).

Arm now lists Arm China as its largest customer in which it has a 4.8 percent indirect holding through a joint venture with SoftBank Group called Acetone Ltd. Acetone owns 48 percent of Arm China.

A quarter to a fifth

For Arm's last three financial years China has accounted for 25, 18 and 20 percent of the company's total revenue, respectively. The corresponding revenue totals were US$2.03 billion, US$2.70 billion and US$2.68 billion.

The registration statement acknowledges that this is a source of risk as these revenues could be impacted by both political and economic developments.

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