SoftBank’s troubled chip technology firm Arm China suffered a 90% drop in profit last year, a financial document reviewed by Reuters showed.
That fall came even as the company’s revenue rose more than 30% during the year.
The findings come on the heels of the company laying off nearly 100 employees last week, most of them engineers.
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Arm China is a joint venture of British chip technology firm Arm Ltd, whose technology powers most global smartphones. The company counts Apple and chip giant Qualcomm as customers.
Net profit plunged to $3.2 million last year from $79.2 million in 2021, the company’s 2022 unaudited earnings statement showed.
Meanwhile, revenue grew to nearly $890 million last year from $665 million the year before.
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.
Troubled history
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. 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. It put in place two CEOs, Eric Chen from SoftBank and Liu Renchen, vice dean at the Research Institute of Tsinghua University in Shenzhen.
‘No effect on Arm’
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, two sources familiar with the situation said.
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.
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.
- Reuters, with additional editing by Vishakha Saxena
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